10.12.2-RISK AND THE RELATION TO TRADE CREDIT-COLLATERAL MANAGEMENT AND WAREHOUSE RECEIPT SYSTEMS - WRS
Collateral management and Warehouse receipt systems - WRS
Using United States experience and systems as a basis, pilot projects in Uganda and the United Republic of Tanzania have in the past been financed by the Common Fund for Commodities (CFC) and implemented by the United Nations Office for Project Services (UNOPS). These pilot projects have set some of the stage through the drafting and introduction of specific national legislation dealing with all aspects of collateral management for the coffee industry, including addressing the vexed question of how lenders can legitimately and efficiently turn collateral into true collectables.
This is a step in a lengthy process that must also include providing the necessary expertise to the jurisdictions that will have to deal with such issues.
Since then similar initiatives have also been undertaken in Ethiopia, Zambia (grain only) and Zimbabwe, the objective being that local banks raise wholesale credit lines and distribute these through the warehouse receipt system.
Properly constituted WRS are an ideal vehicle to facilitate the flow of credit to small-scale borrowers: the goods are in safe hands, quality and weight have been verified, etc. However one catch remains because, usually, WRS represent unsold goods. Goods that do not carry price risk protection. For commercial banks this means there still is a missing link: WRS provide physical collateral and of course present a better credit risk but, if the price risk has not been hedged then WRS by themselves are still not quite good enough.
See topic 10.12.03 for more on this.
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