Tom James, CEO and CIO, and John Collis, CRO of TradeFlow Capital Management (TradeFlow), share insights into how TradeFlow helps narrow the world’s growing trade financing gap whilst meeting ESG objectives.
The Covid-19 pandemic has hit the world hard. Among other severe hardships, trade disruptions caused by the pandemic have adversely affected businesses and economies worldwide, with small and medium-sized enterprises (SMEs) the worst affected.
A reduction in access to finance is one of the issues SMEs – already under-served by traditional financial institutions – are having to deal with, particularly those in developing and least-developed nations. Yet, International Labour Organisation (ILO) studies indicate SMEs provide more than two-thirds of all jobs worldwide, whilst accounting for the majority of new job creation.
Prior to the pandemic, research by the World Trade Organization already provided strong arguments for the reduction of the trade finance gap for positive economic and social impact. Swift and substantial measures to support SMEs during these pandemic-stricken times would therefore help to facilitate a quicker recovery of the global economy, and minimise hardships faced by local populations.
Alarmingly however, the global trade finance gap during this crisis is estimated to have burgeoned from US$1.5tn (according to 2019 estimates by the Asian Development Bank) to a staggering US$3.4tn based on projections by Standard Chartered Bank. In the face of this crisis, the International Chamber of Commerce has estimated a stimulus of up to US$5tn will be needed to return global trade to 2019 levels.
Narrowing the trade gap, fostering prosperity
TradeFlow embarked on our mission of narrowing the trade finance gap faced by SMEs with the strong belief we could also reduce poverty though our innovative FinTech-powered, non-credit, non-lending, commodity trade-enabling investment strategy.
To date, TradeFlow has successfully achieved more than US$500mn in trade values through 700+ transactions across 15+ countries and 25+ commodity types, with more than 800 SME counterpart entities KYC reviewed.
Success stories showcasing how TradeFlow has helped to reduce poverty through our business model include:
- Supporting a Rwandan SME established to help Rwandan farmers obtain better prices for their red beans and to aggregate crops for sale to the World Food Programme or other export. TradeFlow provided technical support and investment for export, including testing the red beans at warehouse in Rwanda and buying them for cash ex-warehouse for export to India and the UAE. This model opened up access to the international markets, with the best practices employed by TradeFlow giving confidence to end buyer firms to try out a new foreign supplier.
- Enabling SMEs in Rwanda and the Democratic Republic of Congo to procure bespoke fertilisers in bulk from China customised to their soil types, thus allowing local farmers affordable ‘pay-as-they-use’ access for increasing crop yields. TradeFlow offered the SMEs an affordable alternative to financing their fertiliser purchase, in lieu of paying an interest rate of 20% with 200% guarantees on trade value. TradeFlow helped the SMEs to be profitable, which in turn helped them provide local employment opportunities and farmer training for more effective fertiliser usage.
Digitalisation: Enabling better trade flow
The ICC’s “Trade Financing and Covid-19” report indicates how a global reliance on paper-based and manual processes has contributed to the vulnerabilities in the trade financing industry; the need to manage many of these processes in person as mandated by law in some jurisdictions have conflicted with safe-distancing measures needed to combat Covid-19.
Digital transformation strategies are therefore integral to helping reduce the trade finance gap; the more effectively this can be done, the more the most affected – farmers, miners, process workers, business owners, their families and societies – can benefit. The fewer economic hardships faced, and the greater the prosperity enjoyed by people, the stronger the social stability.
To address the issues caused by conventional business processes, TradeFlow developed and utilises its own unique Digital Transaction and Risk Transformation Engine (DTRTE) to enable global physical commodity trade for SMEs, leveraging on our innovative non-credit, non-lending model. TradeFlow’s DTRTE architecture provides the added advantage of superior risk-adjusted returns and capital preservation for investors and is highly complementary to traditional trade finance lending institutions like banks. Our proprietary digital solutions include tools that reduce the processing cost and time of KYC/AML requirements.
Mitigating environmental impact
Whilst trade has positive effects for people and societies, it is accompanied by the adverse effects of increased industrialisation and carbon emissions. Despite being the most carbon-efficient means of transporting goods, the latest Greenhouse Gas (GHG) emissions study by the International Maritime Organization (IMO) reported that shipping GHG emissions increased from 977 million tonnes (Mt) in 2012 to 1,076 Mt in 2018, and is anticipated to rise between 50% to 250% by 2050 from growth in maritime trade.
To mitigate the environmental impact of our work in trade enablement, since December 2020, TradeFlow has implemented our Climate Impact Strategy (CIS), leveraging on our unique trade investment model to facilitate Environmental, Social and Corporate Governance (ESG) objectives that support the United Nations Sustainable Development Goals.
The key thrusts of our CIS include an active approach to the following:
1) Awareness and needs identification
TradeFlow actively monitors the latest developments in climate change as an essential part of our business strategy, with our CIS designed holistically to support other UN SDG-related initiatives.
TradeFlow also intends to utilise our unique FinTech-enabled mechanisms to identify opportunities in green and blue financing for sustainable returns over time.
TradeFlow has set realistic and incremental annual targets for the reduction of carbon emissions related to our work. As of December 2020, we have committed to ensuring all shipping of our commodities is carbon-neutral, with a target of 80,000 carbon credits set for 2021/22.
3) Technology and process improvements
TradeFlow commits to the ongoing identification and utilisation of innovative technologies and process improvements throughout our value chain to reduce adverse climate impact. We have successfully applied drone technology to better manage our commodity warehousing which, combined with intelligent sensors, have reduced energy and transport requirements in their management.
TradeFlow is among the first in our industry to utilise FinTech to manage the trade support needs of SMEs that are under-banked and cannot obtain sufficient financial support for all of their physical commodity transactions.
4) Partnerships for action
TradeFlow works with like-minded partners for positive climate impact, including CarbonFund.org Foundation, AirCarbon Exchange and AIMA.
5) Best practices sharing
TradeFlow will share best practices that have led to tangible achievements with our relevant stakeholders, and facilitate alignment throughout our business value chain for greater capacity-building in addressing climate change.
Global bodies and organisations must seize the opportunities created by Covid-19 to “Build Back Better”. Indeed, this has been a rallying cry providing hope in overcoming this global crisis, by focusing on innovative solutions whilst creating a more resilient and equitable system of trade and industry that balances economic and environmental sustainability.
Research by the World Bank and OECD supports the general understanding of the role of trade in reducing poverty and fostering prosperity, even if their correlation in some countries can be adversely affected by complex socio-political factors.
More investors are seeking funds which are able to provide strong and stable returns whilst supporting ESG goals; TradeFlow is pleased to provide this balance.
We are also proud to have proven solutions to address the challenges of narrowing the growing global trade finance gap, aiming to impact lives and societies positively in the process.
We welcome partnerships for sustainable investment, digitalisation and climate impact.
Discover how you can work with us for positive impact at www.tradeflow.capital
TradeFlow Capital Management (TradeFlow) is the world’s first FinTech-powered commodities trade enabler focused on SMEs. TradeFlow consists of a diverse team of experts with the focused mission of addressing the increasing trade finance gap faced by global SMEs operating as producers/traders/end-users in the bulk commodity trading space. By performing an enabling role in international trade and globalisation, TradeFlow creates growth opportunities for businesses and economies.
The TradeFlow Funds*, advised by TradeFlow, were conceived in 2016 and launched in 2018.
Headquartered in the Asian financial hub Singapore, TradeFlow is a FinTech Certified Company (SFA), a Corporate Member of the Singapore FinTech Association (SFA), and a Member of the Alternative Investment Management Association (AIMA).
* No.1 SME-focused trade finance fund in annual net returns to investors in 2020, as reported by Preqin Alternative Investment Database records