Trade Finance refers to all the lending activities by a bank to facilitate trading between two countries. This is completely different from personal and corporate banking and having separate products to help different import and export entities to continue with their trading.
With globalization, it has become very necessary for banks to spread their business across the globe and open up branches in different continents. The main purpose is to facilitate different trading customers in their inter-country trading activities and earn heavy fees from the services offered to them.
Services offered by banks in trade finance category
Assisting clients in importing accessories and raw materials from other countries
Extending credits against receivables of exporting company
Provides loan facilities to customers to import assets from other countries
Offers all the forex services to cater their foreign currency requirements
Risk management services to mitigate credit risk against the default of the buyer
Other risk management like country risk, currency risk etc.
Helps clients to raise loans in foreign currency at attractive interest rates
Offer credit protection to the exporting company until the shipment receives to the desired location
Moreover banks help their clients to reduce cost of funding by availing trade finance activities at cheaper rate and also by reducing their risk exposure in international trading.
Services offered related to Import
Necessary document preparation and collection
Issue Letter of credits
Bankers Acceptance facility
Guarantees for the exporters
Services offered related to Export
Necessary document check and verification
Confirm and validate the Letter of credits
Handling transferable credits and receivables from importers
Extending credit facilities to the overseas buyer
Extending credit to overseas financial institutions for the purpose of on lending to their clients
Providing credit protection to the exporters if the importer fails to pay the exporter.
Banks charge high fee for trade finance related services, that’s why it has become very popular for the banks now.