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  • 10.6.3-RISK AND THE RELATION TO TRADE CREDIT-RISK REMAINS RISK

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  • Risk remains risk

     
     
    Specialised commodity trade banks place trade credits where risk is manageable, that is, where collateral can be realized and genuine debts can relatively easily be recovered through a reasonably modern and properly functioning judicial system, and the funds so obtained can be remitted out of the country.

    International trade houses co-exist well enough with all this but local exporters are often faced with weak internal banking systems that are unable or unwilling to become substantially involved. They have to pay higher rates of interest, and they cannot easily or cannot at all directly access international finance. But the large commodity banks cannot easily or cannot at all work 'in the field' in producing countries, so in-country financing requires local solutions. Sometimes this is achieved by a foreign bank taking a shareholding in a local bank. Even then, local banks remain first and foremost commercial institutions with specific limits and regulations. They cannot always accommodate modern risk management solutions, no matter which shareholder or international development agency backs them or provides the funding for specific packages.

    It has to be recognized that risk remains risk for the seller and their bank until such time as the bank obtains receivables (invoices, with shipping documents) on a pre-approved foreign buyer. Even if the foreign bank is only involved 'at distance', perhaps by providing credit through a local bank, not directly to the borrower, it will nevertheless evaluate both the credit risk and the value in the entire transaction, even if the deal is 'fully collateralized', for example by warehouse receipts or warrants.