Who are the players?

A wide range of companies stands to benefit from SCF programs, including local producers, international and regional trading companies and financial institutions.

Local producers: The primary beneficiaries of SCF liquidity management are local producers of commodities in the developing markets, who are provided working capital for purchase of raw materials, specialized or additional equipment, or other essentials for producing and delivering on a given contract.

International and regional trading companies: There is a vast group of these companies doing business in the developing markets that would benefit from pre-export financing. With SCF risk mitigation, companies that source all their raw materials in a single country, for example, or from a single provider are able to lay off some of their risk on the lender. Here a trading company may want to accommodate a commodity producer with an advance payment in order to ensure a steady flow, but fears exposure to a certain company, industry or country. When mitigated with SCF, advance payment financing enhances the ability for the trading company to do business – without an unnecessary increase in market, commodity and political risk.

Financial institutions: For the lenders, SCF presents an opportunity to add desirable new customers and expand into markets that are simply not accessible through traditional channels. Furthermore, a comparison of SCF financing in developing markets, versus traditional methods, quickly reveals that repayment by an offshore off-taker, rather than by the borrower, has historically proven to be a more effective tool against payment risk. In fact, SCF stipulations for physical evidence of the ability to perform, confirmed by special expertise as well as country and commodity knowledge and full legal documentation, often add up to transaction credit ratings that are actually higher than individual corporate and country ratings.