TradeFlow Capital Management and the International Chamber of Commerce (ICC) are launching a new fund to improve access to trade finance for small and medium-sized enterprises (SMEs) in the commodities sector, who are increasingly struggling to access affordable funding.
Investment management firm TradeFlow takes a non-credit approach to enable physical commodity import and export transactions in products including cocoa, coffee, beans, rice, oil, energy commodities and metal, by taking a neutral principal position and direct ownership of the commodities during shipment or during a pre-agreed storage period.
In 2018, it launched its first US-dollar denominated fund, followed by a euro version in 2020. Since then, the investment manager says it has enabled more than US$1.5bn of trades through over 1,000 transactions for SME commodity firms worldwide.
Advised by TradeFlow’s founders, Tom James and John Collis, the new ICC SME TradeFlow Fund will follow the same model, whereby it simultaneously enters into a purchase contract for the commodity from the supplier and an onward sales contract to the end buyer, thereby supporting cash-starved traders while also offering investors an asset class that TradeFlow says is low risk and low default.
Working in conjunction with ICC’s TradeNow programme, which connects SMEs to products and services to help them access international markets, the fund will also focus on capacity building and providing small traders with technical tools to more effectively manage their transactions.
The fund’s launch comes in the wake of a recent report by McKinsey that estimated that as much as US$500bn of additional financing could be required to support commodity flows amid fluctuations in raw commodity prices, shipping delays, rising interest rates and underlying inflationary pressures. While large players have recently expressed confidence in the financing options available to them, bank de-risking and a wider flight to quality in the wake of high-profile fraud scandals has seen a tightening of credit facilities for smaller traders.
“The global business community desperately needs new and impactful solutions that can materially address the growing trade finance gap, which disproportionately affects small and medium-sized businesses,” says John Denton, ICC secretary general. “The ICC SME TradeFlow Fund can help unlock liquidity for SMEs in the commodities sector by providing an innovative and compelling solution to a broad array of investors.”
The ICC says it is now looking to build a “coalition of partners” within the investor community to ensure small businesses trading bulk commodities can grow and thrive.