Understanding Basic Trade
Finance Structuring Techniques
and Lessons from Failed Deals
By Dr. B. O. Oramah*
*Dr. B.O. Oramah is Executive Vice President at Afreximbank
Opinions expressed herein do not necessarily reflect the views of Afreximbank
The Trade Finance Bank for Africa 1
Preamble:
Major objective of this presentation is to refresh participants’
memories about the basics of Structured Trade Finance
To achieve the above objective, the paper is organized as
follows:
Section One explains Risk,
Section Two defines Structured Trade Finance and
the steps involved in Structuring,
Section Three discusses Deal Breakers,
Section Four touches on Pricing issues,
Section Five discusses why some structured trade
deals fail, while
Section Six concludes
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1. RISK IDENTIFICATION AND MITIGATION
1.1 What is Risk?
Two Definitions:
1.
Context in which an Event Occurs with some
Probability or where the size of the Event has a
Probability Distribution.
2.
A Class of Uncertain Events which Affects the wellbeing of a decision maker or a class of Decision –
Makers.
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
Definition No. 2 is more APPROPRIATE for
what is Risk if there is no cost to it?
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1.2 Operative Words
The Operative Words Are:
UNCERTAINTY
WELL-BEING
DECISION-MAKER
In this case;
 DECISION-MAKER
 WELL-BEING
 UNCERTAINTY
= Bank
= Bank’s Financial Health
= Events Outside Bank’s Control
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1.3 Uncertain Events In Credit Transactions Arise Because

Banks are unable to determine client’s ability to meet
obligation with any degree of certainty due to a variety
of reasons,
Such as:

Changes in Borrower’s Financial Standing

Changes in Borrower’s Business Environment

Changes in Country Conditions

Changes in the Financial Conditions of the
Borrower’s Direct and Indirect Counter-parties
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 The above are usually aggregated into;
Credit
Risk
Business
Risk
Performance
Risk
Counter
Party Risk, and
Country
Risk
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1.4 Key Characteristics of the identified Risks are
that they are;
 Separable
 Transferable
 Essentially
Exhaustive
 And Therefore Can Be Mitigated
The above characteristics form the
Foundation of Structuring
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2. ROLE OF STRUCTURED FINANCE IN
RISK MITIGATION
2.1 Structured Finance is the;

Art of transferring Risk in Financing
Transactions from Parties less able to Bear
those Risks to those more equipped to
bear them in a manner that ensures
Automatic Reimbursement of Advances
from the Underlying transaction Assets
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It encompasses:
“Any structure whereby certain assets (inventory,
contract, export receivables etc) with more or less
Predictable cash-flows can be isolated from the
originator, Pledged (Sold, leased etc) and used to
support the Financing being raised (as collateral
and/or source of reimbursement or repayment) or
to substitute it”
(Emmanuelle Moors de Georgio)
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Accordingly, Structured Finance Converts
Uncertainty to some “Certainty” (Predictable
Cash-flow) and thereby Mitigates Risks.
Unbankable deals therefore become bankable.
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2.2 THE COLLATERALIZATION OF CREDITS:
A SCHEMATIC OVERVIEW OF STRUCTURED FINANCE
Collateralized Lending
Commodities as
collateral
Assets other than commodities as:
• Unconditional collateral (cash,
treasury bonds, stock):
• Collateral conditional on the
performance of the party offering
the collateral (irrevocable L/Cs)
• Collateral conditional on the
performance of a third party debtor
(loan or contract/ Accounts
receivables, Assignments of
contracts):
• Assets backing Special Purpose
Vehicles (credit card receivables,
road tolls).
Direct Use
Indirect Use:
Special Purpose
Vehicles, issuing
Bonds which are
Collateralized by
Commodity
assets
Commodities
Have been
produced
already
Warehouse
receipts
Non-Negotiable:
Used within
a deal
Negotiable:
can be traded
on a secondary
market
Commodities
not yet produced;
Commodities
In the ground
or being grown
are assigned
as collateral
Trust receipt:
Used for
Commodity
processing
Courtesy: L. Rutten, UNCTAD, Geneva
Secured Finance: collateral is assigned
Structured Finance: Collateral is assigned and an automatic reimbursement procedure is
devised
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1. Understanding the envisaged
physical transaction
2. Understanding the Flow of Documents
(Sketched if Possible)
2.3 Essential Steps in
Building a Structure:
3. Understanding the envisaged Funds flow
arising from the physical (Sketch)
4. identifying key parties and entities involved,
including countries of Domicile of the parties
5. Assessing the Risks
6. Identifying Mitigants
7. Developing the Term Sheet
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8. Legal Documentation
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2.4 THE BUILDING BLOCKS:
Understanding the Physical Transaction:
1
-
What good is being shipped?
What are the contract specifications?
When is the good to be shipped?
Where will it be shipped to?
How is the good to be transported, any intermediate warehousing?
Who is the w/house?
- What is the cycle of shipment?
Understanding the Nature and Flow of Documents:
2
- The Sale contract (the parties involved)
- Industry rules under which the contract was drawn (CAL, AFCC,
FOSFA, etc)
- The shipping documents
- Quality certificates (who issues?)
- Insurances (what do they cover?)
- How are documents to be remitted and received?
- The Export License and other official docs. required for shipment?
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Understanding the Envisaged Funds Flow:
3
•
•
•
•
•
•
•
What are the sums involved?
How and when are they to be paid?
Where are they to be paid and received?
What currencies are involved?
Are any deductions to be made?
Are there provisions for Reimbursements?
What duties and taxes are payable?
Identifying Key Parties and Entities Involved:
4
•
•
•
•
•
•
•
•
Who is the shipper (Exporter)? Based in which Country?
Who is the buyer (Importer)? Based in which Country?
Who are the forwarding Agents?
Who are the insurers?
Who are the warehouse men (if any?)
Who are the document remitting bank?
The L/C bank?
The Inspection Agents?
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Assessing the Risks
5
Evaluating the building blocks
in steps 1 to 4 using certain
Risk Acceptance Criteria
Identifying Mitigants
6
Identifying securities, contractual
obligations, etc… to deal with
unacceptable risks as may be
identified in step 5
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The Term Sheet
7
Legal Documentation
8
•
•
•
•
•
•
Generating the Legal documents to support (6-7)
Dealing with Legal Risks
Legal Opinions
Governing Law
Local Law/Regulation
Documentary Taxes in Security Perfection
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2.5 Arriving at the Structure:
Risk assessment and Mitigation
Risk Factor
Credit Risk
Character / Management / Financial
Assessment Criteria
 Is borrower rated, with investment grade rating? Or Are key
individuals behind the Borrower of high integrity and:
 have no record of corruption or fraud
 no conviction for criminal offence
 well respected in the trade for honesty and reliability
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 have risk appetite assessed to be moderate. In this regard,
shareholding must be well spread, if not wholly owned by
government.
 Key officers must have the ability to withstand political and
other pressures
 Do internal controls evidence separation of powers and
devolution of authority?
 Are there no Board room squabble of significance?
 Do key officers have relevant formal and/or informal training
in the trade?
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Do key officers have sufficient knowledge about the business?
Can key officers show evidence of satisfactory performance in
past positions?
Does organization have a sound and documented corporate
strategy outlining the vision of management?
Does the institution have a very good relationship with the
regulatory authorities?
Is management turn-over high?
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Does the organization maintain consistent profitability (over 3
years) (any decline to be explained by factors outside the
organization’s control)
Is debt/equity ratio at least equal to the industry average or those
of competitors in the country concerned. Where a monopoly is
being assessed, the analyst should use his judgment to ascertain a
prudential ratio to accept
Are the company’s assets mostly current?
 Does it maintain a strong position among its competitors in market
share and financial standing.
 Is debt service coverage ratio greater than 2
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Possible Mitigants that may be used to improve risk
If Answers are NO, Risk may be transferred to other more credit
worthy counterparties by:
 In the case of a trading company, having a credit worthy and
reliable local bank to on-lend funds.
 Taking acceptable guarantees (corporate, local bank or reliable
affiliates or holding companies).
 Structure loan to make self liquidating by transferring
repayment risk to other credit worthy entities with the Bank
having title over the receivables, if ability to perform contract is
adjudged “good”.
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Risk Factor
Performance Risk
Assessment Criteria
Does the company:
have good track record i.e. has it exported successfully for at
least 3 years?
Have necessary facilities vehicles, personnel, local supply
network, warehouses, processing plants, to support
transactions implied by the Facility amount being requested?
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
Is the company’s export market share in the business
sizeable such that the company is perceived as being in
general in the top 15% of its trade by peers?

Has the company good working relationship with the
regulatory authorities of the trade?

Are there minimal social unrests, work stoppages,
incidents of arson and theft of goods in warehouse or intransit?

Is port infrastructure sound and adequate to support the
trade?

No major adverse changes in the sector or company (by
the government) is being expected?
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Possible Mitigants
If answers are no;
 limit the lender’s role to refinance of stock in third party
warehouse or provide post-shipment credit only
 poor performance risk can be transferred to a good credit risk of
a bank, government or other entities. (if such risk is found
acceptable)
 explicit charge on marketable assets of the company located in
acceptable jurisdiction.
 Cash collateral to be taken
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Borrower to take insurance coverage on stocks, if arson and
theft are rife. Insurance to be assigned to the Lender.
Have acceptable Management Consultants/Collateral Agents
monitor facility. Now Collateral Management companies
abound and can assist.
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Risk Factor
Country Risk
Assessment Criteria
Are there existing or potential political and social problems e.g.
arbitrary government restriction or actions, or socio-political
unrest?
Are there existing or potential economic/financial difficulties?
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Possible Mitigants
 Transfer repayment risk to a jurisdiction with better risk rating
if other risk factors are found acceptable.
 Take appropriate securities domiciled outside the country
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Risk Factor
Loan Purpose
Assessment Criteria
Must be seen to improve profitability of the business
Must be seen to have economic benefit to the country
Possible Mitigants
 None. The Loans to be supported must have a valid purpose.
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Risk Factor
Price
Assessment Criteria
Is price of the commodity volatile and uncovered?
Possible Mitigants
 Margin the financing sufficiently
 Only accept firm fixed price contracts
 Take a price Hedge (options, futures, forwards or swaps)
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Risk Factor
Exchange Rate
Assessment Criteria
Is the currency of receivable different from currency of loan?
Possible Mitigants
Enter a currency forward, swap, futures or option
Margin the financing sufficiently
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Risk Factor
Market
Assessment Criteria
Is demand volatile?
Is buyer likely to renege on contract to buy ?
Possible Mitigants
Enter only firm fixed price contracts with acceptable buyers
Use only Irrevocable L/Cs issued by acceptable banks
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Risk Factor
Buyer
Assessment Criteria
Is buyer a reputable trading house ?
Does buyer have acceptable credit rating?
Possible Mitigants
Use Irrevocable L/Cs’ issued by prime investment grade-rated
banks
Use Credit Insurance
Bank Guarantees
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2.6 Typical Structure - Commodity Pre-Financing
Figure 1: Commodity Pre-financing securitized by export flow
2. Buyer Acknowledges Receipt of
Assignments notice
Exporter
Lending
Bank
(Int’l Bank)
3. Lending Bank disburses
funds to Exporter
4. Exporter ships goods
1. Export contract
with Buyer
Buyer
5. Buyer pays for exports as per
assignment
2. Exporter Assigns Export Contracts to Lending Bank
(with notification to Buyer)
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Key Features of Deal are

Performance Risk is Retained on Exporter

Payment Risk is Isolated and Transferred to an OECD Buyer

Price Risk is mitigated by pre-financing firm fixed price
contracts or through a price hedge

Security and Repayment are Achieved through;
•
Assignments and acknowledgements
•
Charges
•
Pledges, etc
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2.7 Such Deals are Possible where:

Commodity involved is Exchange - Traded

Exporter has Good Track Record

Foreign buyers are diversified and are good names

Exporter’s country is reasonably stable (Politically and
economically)

Underlying Contract is sufficiently Long, Binding and
Enforceable

The Borrower is able to assign and/or transfer its
Assets.
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2.8 Deals with Deviations from Typical
2.8.1 PROBLEM ONE
IF EXPORTER CANNOT ASSIGN OR PLEDGE ASSETS DUE TO
NEGATIVE PLEDGE CLAUSES
SOLUTIONS
 Use a Pre-Payment Structure (Figure 2) e.g. Cotton deals in
Tanzania, Oil deals in Angola;
 Use Irrevocable Payment Instructions and take all funds
coming into collection account as repayment (because other
creditors can attach the receivables and the Collection
Account), e.g. Copper deals in Zambia in the 1990s.
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Figure 2: Dealing with Problem 1:
A Prepayment Financing Structure
Lending
Bank
3. Goods shipped
to Buyer
1.Export Contract,
Foreign Currency
Prepayment Agreement
Buyer
2. Disbursement against assignment of
Prepayment Benefits
5. Repayment, then Documents
endorsed to Buyer
4. Title Documents to Lending Bank
Exporter
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2.8.2 PROBLEM TWO
IF EXPORTER PERFORMANCE CAPABILITY IS IN
DOUBT
SOLUTIONS
a)
Finance Against Stock in Warehouse under Third Party
Supervision
b)
Take Performance Guarantee from a Local Bank or
Insurance Company (Figure 3)
c)
Finance on Credit of Buyer Under a Red or green Clause
Letter of Credit (Figure 4)
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Figure 3: Dealing with Problem 2
(b) Lending With Payment Guarantee
Guarantor
Bank b)
4. Disbursement
2. Contract
Assignment
Lending
Bank
3. Guarantee (which may or may not be
collateralized) a)
1. Commercial Contract
Exporter
Importer
5. Goods
a)
b)
Securities taken include depositing of treasury bills, partial cash collateral etc.
Guarantor may be local or international bank, government, central bank or a multinational corporation
which may be a major shareholder of the exporting company.
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Figure 4
Dealing with Problem 2
(c) Financing the Buyer Under Limited Recourse Structure
2. Limited Recourse Loan
Lender
4. Goods shipped
to Buyer
1.Export Contract,
Foreign Currency
Prepayment
Buyer
5. Repayment contingent on
successful export of goods
Exporter
3. Pays for and receives Crude
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Crude
Supplier
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2.8.3 PROBLEM THREE
IF THE COMMODITY IS NOT EXCHANGE TRADED, e.g.
Manufactured Goods
SOLUTION

Obtain A Local Bank Guarantee Or Performance Bond From A
Credit-Worthy Insurance Company

Finance only against L/Cs with Required Documents Clearly
Specified

Use Twinning to reduce Performance Risk, e.g. as in
Afreximbank Export Development Finance Programme.
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2.8.4 PROBLEM FOUR
IF TRANSACTION INVOLVES PROCESSING RISK
SOLUTION

Refinance Raw material stock in W/House under Third Party
Supervision and sell stock forward through an option

Mitigate Processing and Payment Risks by allowing stock to
be drawn under a “Buy-Back” Arrangement. (e.g. cocoa
processing in Nigeria), i.e. stock under collateral management
can only be drawn for processing upon receipt of sums of at
least 125% of value of stock to be drawn.
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2.8.5 PROBLEM FIVE
If Traded Good/Service Is Not Conventional, e.g.
Trading Done On;

Consignment Basis (Flowers)

Through Agents (Diamonds)

Aircraft Purchase

Raw fish Export

Telecommunication

Power

Oil Services

Hotels
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SOLUTION
Product
1. Diamonds
2. Fish
Country
Transaction was
Done
Guinea
What have been/
can be Assigned
Sales proceeds due
exporter from sales agent
Namibia, Seychelles Fishing Royalties
3. Horticulture
Zimbabwe/Kenya
Book receivables from
Flower Auction
4. Telecom
Ghana, Nigeria,
Zimbabwe, Sudan
 Net Call receivables in USD
 Roaming charges (GSM)
 Air time revenues.
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Product
5. Power
6. Beef
Country
Transaction was
Done
Zimbabwe
Zimbabwe, Zambia
7. Aircraft
Ghana, Nigeria
8. Airport
Ghana
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What have been/
can be Assigned
Proceeds of Power
Purchase Contract with
mining companies
Sales proceeds collected by
Sales Agent and covered
by Credit Insurance
Ticket Sales Proceeds,
Airline Royalties
Over-Flight-Fees
(46)
Product
9. Mining Services
10. Hotels
Country
Transaction was
Done
What have been/
can be Assigned
Nigeria, Angola
Zambia, Ghana
Proceeds of Service
Contracts entered into with
Major Companies
Eastern & Southern
Africa, Nigeria,
Ghana
 Term room rentals with
reputable corporates and
tour companies
 Financial Future Flow
Structures (e.g. credit
card payment rights)
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2.8.6 PROBLEM SIX
WHAT OF INTRA-AFRICAN TRADE?
SOLUTION

Cover Country Risk using Afreximbank Country Risk
Guarantee Facility (See Figure 5)
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AFREXIMBANK intervention
as risk mitigant
Risk Period for lending bank
International bank assumes payment risk of
an African entity (through L/C issuance/
confirmation or other forms of financing Figure
5
Afreximbank provides
cover against certain country risk
events
AFREXIMBANK COUNTRY RISK GUARANTEE FACILITY FLOW OF TRANSACTIONS
At maturity, International bank is
reimbursed by obligor
Yes
No
Yes
Yes
Exposure Extinguished
No
Cause of Non-reimbursement is
determined and risk is shared
Non-reimbursement caused by commercial risk (credit,
documentary/administration risks and fraud) events,
force majeure and/or certain country risk events
Lenders pursue security from Borrower
No
At maturity, International bank
is reimbursed by obligor ?
Yes
Afreximbank is discharged
Non-reimbursement caused by certain country risk events (exchange.
control regulations, moratorium on debt payment, change in law or
policy affecting the timing currency or manner of debt payment
Yes
AFREXIMBANK reimburses covered portion (80%) to Lender
and pursues reimbursement with country concerned in
accordance with Bank Membership Agreement
On recovery of repayment. Lending bank is
reimbursed the remaining 20%, less reasonable
costs incurred by Afreximbank in pursing recovery
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
Use your country’s ECA cover, if available

Finance against Buyer’s Assignment of Export Receivable
from a more secure country

Take out Country Risk insurance from ATI and Lloyds if
there is availability
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2.8.7 Role Envisaged for Local Banks by
International Banks under Structured Finance
a) Confirmers of Local Producer/Exporter Performance
b) Funded participants or as collateral agents in transactions
c) As disbursement Agents, L/C advising Bank/Collection Agents
d) Monitoring Local Exporter Performance against set Criteria and
Delivery Projections
e) Source of Local knowledge ( A. Applegarth)
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2.8.8 Banks as Performance Risk Guarantors or
beneficiaries of export Lines of Credit
Local Bank Risks can be, and have been enhanced through:
 Pledge of Treasury Bills or Government Bonds e.g. banks
in Zimbabwe, Zambia, Nigeria

Assignment of Financial Future Flows (Migrant
Remittances) e.g. banks in Ghana, Nigeria and Ethiopia

Assignment of Credit Card Receivables

Assignment of Check Remittances, e.g. Turkey

Assignment of Trade Finance Payment Rights e.g. a 1999
Groundbreaking deal in Turkey
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The Benefits are that :

The local bank is able to launch itself in the
market and may be able to obtain better terms
subsequently

It increases the amount of borrowing the local
bank may be able to raise at better pricing
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2.8.9 Some Innovative Structures Implemented with Local
Banks
1) USD40 million Migrant Remittance Pre-financing for an African
Agricultural Development Bank
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QUALIFIED LOCAL BANKS
(BORROWERS)
OIL SERVICE COs.
4. Oil Field
Services
2) GUARANTEED AFREXIMBANK-BACKED SECURITIZED
OIL SERVICE NOTES (GASON)
2. Acknowledgement
2. L.O.C**
5. C.W.D***
2. Risk
Participation
Agreement
Credit Enhancement*
(Lloyds /AFREXIM)
3. Funding
AFREXIMBANK
Lender of Record
OIL MAJORS
(SUBSIDIARIES)
ESCROW A/C
LENDERS (INTERNATIONAL BANKS)
* May include Country Risk and Performance Risk Guarantees
** Letter of Comfort
*** Certificate of Work Done or Accepted Invoices
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2.8.10 The Success Factors in Structuring Deals
THE THREE D’s; i.e.: UNDERSTAND
 D EAL FLOW;
 D OCUMENTS FLOW; AND CONDUCT PROPER
 D UE DILIGENCE (Financial, Economic, Transactional,
Credit and Legal)
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3. DEAL BREAKERS







Untested and/or ambiguous Commercial Law or
Law relating to Security and Title to Goods,
transfer of title and documents of title, and
Bankruptcy
Registration issues and Stamp Duties
Export Licenses and unclear Export procedures
Political Risk
Unclear Insurance Regulations
Unfamiliarity with Loan Agreements and
collateral verification and control
KYC/AML Issues
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4. PRICING ISSUES

Structured Finance Makes It Possible To Achieve Lower
Pricing For A Given Transaction

Pricing Must, However, Take Account of the Following:

Effort expended in putting the structure in place;

Risks involved;

Market practice; Desired return on Capital;

Need to attract other parties to deal, if transaction is
large; and

Weight to attach to fees and interest rates
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5. Role of Central Banks
 Creating enabling environment to facilitate
inflow of international financing through:

Ensuring currency convertibility and transfers i.e.
enabling exchange control regime

Appropriate monetary policies that are friendly to
exports

Ensuring a sound banking system

A transparent and rule-based regulatory framework

To enable participation of local bank, clarifying
how structured trade finance amy be treated under
Basle II
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6. Failed Deals and Lessons

Structured Deals Are Not Fail Proof. Some examples:
6.1 A Cocoa Deal in West Africa – 1996
Borrower:
Major Indigenous Cocoa Trader Controlling more
than 30% of the Market at the time deal was done
Security Agent:
London Branch of an Asian bank
Purpose:
To support Borrower’s working and Investment
Capital Requirements by way of pre-finance of
Term Cocoa Export Contracts Entered into with
Major International Cocoa Trading House
Source of
Repayment:
From assigned Cocoa Export Proceeds
Facility Type:
Syndicated Pre-Export Financing Facility
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Deal Structure
Deal
1
Assignment of proceeds
of fixed-price cocoa sales
contracts with leading
commodity' traders
(Phibro Commodities,
General Cocoa, Mitsubishi
Andre et cie and E D & F
Man Cocoa Ltd.) for at
least 125% of the Facility
Amount as well as a
pledge over local cocoa
stocks on a tonnage basis
2
Deal Pillars
3
Additionally, there will be a
charge over the proceeds
to be held in an Account to
be maintained in the name
of the Borrower with the
Lender/Security Agent into
which cocoa proceeds will
be paid by the cocoa
buyers
Upon delivery of the cocoa lots
into the warehouse. the
warehouse agents will issue
warehouse receipts in the
name of the Lender/Security
Agent. At the time of shipment
of the cocoa produce, the
Lender/Security Agent will
receive the complete set of
shipping documents,
Support for the Pillars
Security Agent
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Warehouse
Agents
(61)
 What Went Wrong?


Security Agent did not know the Difference
between Good Fermented Cocoa (GFC) and
Fair Average Quality Cocoa (FAQ) so could not
interprete the Stock Report Properly

Since Assigned Contract was for GFC and most
of stock became FAQ, Pillar I collapsed AND
DEAL FAILED.
Loss was not 100% as FAQ cocoa was eventually sold
at lower price.
The Trade Finance Bank for Africa
(62)
6.2 A Cocoa Deal in West Africa – 1998
Borrower:
A medium – sized U.K Cocoa Trader Active in West
Africa
Purpose:
To enable the Borrower purchase Cocoa in West
Africa for export using its local office
Facility Agent:
A Local Bank
Type of Facility:
Pre-export financing
Goods:
Cocoa of LIFFE deliverable quality
The Trade Finance Bank for Africa
(63)
Deal Structure
Deal
Deal Pillars
2
1
Assignment of
firm fixed price
cocoa sales
contracts
between the
Borrower and
ultimate
buyers, such as
Nestle, Mars
and Rowntrees
(the "Buyers")
Goods will be
moved from the
warehouse to
the ports and
loaded onboard vessels
by preapproved
forwarding
agents who will
bear
responsibility
for the goods
while in their
custody
3
All Shipping
documents to
be routed
through Local
Agent to the
presenting
banks with
instructions for
payments to be
made directly
to an account
nominated by
the Lenders
5
4
Fixed charge over
a Collection
Account (the
“Collection
Account”) that will
be opened by the
Borrower with the
Off-shore Agent or
a bank nominated
by the Off-Shore
Agent where
proceeds of
assigned contracts
will be remitted
Advances will also
be against LIFFE
deliverable quality
cocoa received in
warehouses under
third party
supervision. The
warehouse keeper
will also be
expected to issue
quality certificates
covering the stored
cocoa. The warrants
will be held by the
Local Agent in trust
for the Lenders
Support for the Pillars
Local Agent
The Trade Finance Bank for Africa
Warehouse
Agents
(64)
 What Went Wrong?


Borrower pledged same cocoa stock to Multiple
Lenders with Connivance of Warehouse Agent

Local Agent was not doing proper Monitoring
to identify the Multiple pledges of which
Lenders were alerted by manipulation of the
endorsement page on the Insurance certificates

Accordingly pillar 3 collapsed and with it the
Deal
Loss was not 100% as cocoa was sold and proceeds
distributed to multiple Lenders.
The Trade Finance Bank for Africa
(65)
6.3 LESSONS

HUMAN BEINGS ARE CENTRAL TO
SUCCESS OF ANY STRUCTURED DEAL –
Knowledge, Experience, Being Hands On And
Integrity Are Critical; Watch Agency Risk,
Watch Fraud Risk etc.

DON’T BE FOOLED by Supposed Big Size Of
Borrower Or Their Location. Do Your Normal
Due Diligence.
The Trade Finance Bank for Africa
(66)
7. CONCLUSIONS
 Structured Finance is a useful tool of providing finance
under difficult environment.
 Essential Difference with Corporate Finance is that
while Corporate Finance follows the Balance Sheet.
Structured Trade Finance follows the deal (implication,
you need to understand trade docs in Structured
Finance)
 It needs careful design for it to achieve its purpose
 it is continuously evolving
 It requires a lot of Effort and Imagination
The Trade Finance Bank for Africa
(67)
Thank You
African Export-Import Bank
2009
The Trade Finance Bank for Africa
(68)