trade finance

Middle Eastern trade relationships are having an overhaul of sorts, particularly with the landmark normalization of relations between the UAE and Israel. One of President Donald Trump’s many legacies towards a more peaceful world, Israel and the UAE entered into the Abraham Accords Peace Agreement in October 2020. Israeli Prime Minister, Benjamin Netanyahu and Sheikh Mohammed Bin Zayed, Deputy Supreme Commander of the UAE issued a joint statement pledging to “chart a new path that will unlock greater potential in the region.” 

The UAE is only the 3^rd Arab nation to normalize relations with Israel along with Egypt and Jordan, however Bahrain and Morocco are also joining this trend and we may see more to follow.  

Establishing New Trade Relationships 

Ships have already exchanged goods between the UAE and Israel, banks in the two countries have struck up cordial relationships and Israeli tourists arrived in Dubai on the first ever direct commercial flight from Tel Aviv to Dubai.  

These advances are crucial to more peaceful cooperation in the Middle East and de-escalation of tensions in the region. It is an opportunity for knowledge sharing and the establishment of new relationships. The normalizing of trade relationships between Israel and the Middle East will also bring plenty of opportunities for SMEs and other smaller players in international trade.  

The UAE: Israel’s Gateway to the Gulf? 

Due to tensions in the Middle East, Israel has been traditionally kept out of regional markets. However, the UAE has a reputation for being the gateway to the Middle East, maintaining excellent relationships with nearly all regional trade partners. This will provide great benefits for trade in the Middle East, allowing Israeli and Arab traders to more efficiently interact with each other through the UAE. 

Qatar Back in the Fold 

January 2021 also brought more good news for Middle Eastern Trade in the form of normalizing relations between Saudi Arabia’s allies, the UAE and Qatar. In 2017, many gulf states severed relations with Qatar over a dispute regarding Qatar’s purported support for certain Islamist outfits. The dispute plunged the region into turmoil, but now it seems that matters are being resolved and trade and diplomatic relations will soon normalize. All of these developments may well trigger a new golden age for free trade in the Middle East.

Spurred on by a nationwide vaccination drive, India is seeing a healthy “V-Shaped” economic recovery. According to an article authored by top officials of the Reserve Bank of India, the country is on the cusp of posting positive growth for financial year 2020-2021. It is only natural for India to be able to launch and sustain possibly the world’s largest vaccination programme against COVID-19. After all, India leads the world in terms of vaccine manufacturing capacity and has plenty of experience with mass vaccinations, having successfully used vaccines to battle polio and measles.

Economic Outlook 

Despite suffering huge contractions in the first two quarters of financial year 2020-2021, 23.9% and 7.5% respectively, the Indian economy is on a rebound. Business activity continued to expand in the 3^rd quarter with the Markit India Services Purchasing Manager’s Index recording 52.3 points for December 2020, indicating expanding business activity.

Demand too has remained stable and continues to grow, while manufacturing activity also remained resilient. Consumer activity was up as well and even exports showed healthy signs of recovery in December 2020.   

Thus, despite original projections of a 7.5% contraction in India’s GDP across 2020-2021, given the present economic Indications, and the personal views expressed by senior RBI officials, it is reasonable to expect India’s economy to end the financial year relatively flat or with modest growth.  

Sector Overview 

The agriculture, forestry and fishing sectors have shown positive growth throughout the crisis. This is excellent news in terms of the robustness of India’s economy. However, it is unreasonable to expect these sectors to spur economic growth on their own, without a proper recovery in manufacturing.

Professional services, real estate and financial services did not suffer as badly as some other sectors and a recovery is now underway. However, industrial and consumer demand will dictate how effective any recovery will be. 

While construction is seeing a significant recovery and communications has enjoyed significant broad-based growth as a result of the pandemic, gains in these areas are likely to be overshadowed by the dire state of tourism, which will take time to recover, coupled with general slowdowns in domestic trade. 

Government-driven sectors such as defense, public administration, and utilities are likely to return to normalcy much faster than other sectors. However, it is not possible for these sectors to sustain a wider economic recovery on their own.

Bill of Lading is a legal document, used between a shipper and a carrier that specifies the type, quantity, and destination of the goods that are being carried. The bill is also used as a shipment receipt when the carrier delivers goods at the predetermined destination. One of the most important documents involved with a shipment is the Bill of Lading.

A Bill of Lading is a receipt for the cargo, which contains all the pertinent information for the shipment. It is provided as a Master Bill of Lading from the Carrier, or a House Bill of Lading from the NVOCC. It includes the shipper/consignee information, container numbers, seals, piece counts, weights, and more. Without the Bill of Lading, the cargo cannot be released. Therefore, it is imperative that the information on the Bill of Lading is clear and accurate. The Shipper is ultimately responsible for the information that will appear on the final Bill of Lading. They, or their NVOCC/Forwarder, will provide this information on a document called the Shipping Instructions. This document must be supplied to the Carrier before the Documentation and AES cut-off (generally the day before the cargo cut-off, but this will depend on the first transshipment port and country of destination.) Before a Carrier will accept a shipment, they must receive clear, and accurate, Shipping Instructions that contain all of the necessary information for the shipment. For a trade to be classified as merchanting trade, goods acquired shall not enter the Domestic Tariff Area.

Considering that in some cases, the goods acquired may require certain specific processing/ value-addition, the state of goods so acquired may be allowed transformation subject to the AD bank being satisfied with the documentary evidence and bonafide of the transaction. The MTT shall be undertaken for the goods that are permitted for exports/imports under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment. All rules, regulations, and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry) shall be complied with for the export leg and import leg respectively. AD bank shall satisfy itself with the bonafide of the transactions. Further, KYC and AML guidelines shall be scrupulously adhered to by the AD bank while handling such transactions.

Merchanting Trade is done when, the supplier of goods will be resident in one foreign country, the buyer of goods will be resident in another foreign country and the merchant or the intermediary will be resident in India. Sometimes what happened in the normal course of business a person buys some goods from one person and sale to another person may be within the same city/ town/ village/ state or within anywhere in the domestic country.

As per the revised guidelines, Merchanting Trade Transaction should satisfy the following condition: For a trade to be classified as merchanting trade, goods acquired shall not enter the Domestic Tariff Area. Considering that in some cases, the goods acquired may require certain specific processing/ value-addition, the state of goods so acquired may be allowed transformation subject to the AD bank being satisfied with the documentary evidence and bonafide of the transaction. The MTT shall be undertaken for the goods that are permitted for exports/imports under the prevailing Foreign Trade Policy (FTP) of India. AD bank shall satisfy itself with the bonafide of the transactions.

The entire merchanting trade is to be routed through the same AD bank. The entire MTT shall be completed within an overall period of nine months and there shall not be any outlay of foreign exchange beyond four months. Short-term credit either by way of suppliers’ credit or buyers’ credit may be extended for MTT to the extent not backed by an advance remittance for the export leg. Payment for import leg may also be allowed to be made out of the balances in the EEFC account of the merchant trader.  The formula to determine if a particular merchanting trade does result in a profit is clearly defined and is as follows: Merchanting Trade Transaction Profit = Exports proceeds of the Merchanting Trade Transaction – (Import Payments + Related Expenses for the transaction). This needs to be checked for every transaction by the AD Banks. The Merchanting Trade Transaction buyer is declared insolvent along with proof from the Liquidator who certifies that the amount cannot be recovered from the buyer. Auction of the goods exported or Destruction of the goods exported by the authorities in the importing country (by Port or Customs or Health authorities) and certified proof of the same is provided. The unrealized amount is the balance due in a settlement case intervened by the Indian Embassy, Foreign Chamber of Commerce, etc.

There is a lot of confusion going on in understating the difference between DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid). The meaning of the DDU term is also called ‘Delivery Duty Unpaid’ or ‘Door delivery Duty Unpaid’. In the case of DDU, the seller meets all costs except importing tax or duty of the said goods at importing country. DDU shipment, except duty or taxes of importing country,  all other charges have to be paid by the seller of goods. In other words, the selling cost of goods included all charges to deliver goods up to the door of the consignee except duty or tax of importing country.In a DDU shipment, the seller takes care of all necessary transportation, customs clearance charges, and shipping charges, etc. at load port and destination port inclusive of handling charges at the port of loading and port of discharge. 

Delivered Duty Paid (Door delivered duty Paid), the seller of goods meets complete expenses including duty or tax under goods to deliver at the premises of buyer. In other words, the selling cost of goods includes all expenses inclusive of taxes to reach the goods at the doorstep of the buyer’s premises. In a DDP shipment, the exporter bears all expenses of transportation, customs clearance, handling expenses, and all other charges at load port and destination port to reach the goods at the importer’s premises. DDP means the seller pays for the import customs clearance, duties, and taxes associated with importing a product into another country. DDP means that the seller pays all requisite import fees before the import crosses borders. 

DDU, which is also known as DAP (Duties At Place), means the buyer has to pay for all import customs clearance, duties, and taxes upon delivery. Basically, DDU/DAP means that the buyer has to pay for all the requisite import fees when the import arrives at their address. Terms of trade, also called Incoterms or International Commercial Terms, details seller or buy bear the responsibility and cost for import clearance, duties, and delivery to the final destination. Two common terms of trade options are DDP and DDU.CategoriesTrade Finance

Technology has evolved the world into a better place. Careers have also experienced a change in their protocols of working. Technology’s role gets highlighted and vivid when we think about Trade Finance as a career.  

Recently, trading has magnified its reach and simplified working, which was not the case before. Though everything seems pretty simple yet, it has challenges to tackle and situations to conquer, making it onerous as a job role. 

Trade Finance deals with financing for trade, where importers and exporters are the medium and concerns domestic and international transactions. 

Skills required for the career, Trade Finance 

1. The participants should understand international trade thoroughly.  

2. The candidates need to understand the different challenges or issues occurring between businesses globally, including risks related to currency, economic issues, political risks, and cultural differences. 

3. Fluency in foreign languages will add an edge to your Curriculum Vitae because this job requires good communication skills, both verbal and written.  

4. Any prior experience of dealing with foreign clients or companies will make you stand out because you would be aware of the working style.  

Descriptive Job Role 

There are three main categories, wisely catering to the descriptive role of the job as follows: 

1. Securing the Trade 

It is the first category with the utmost importance. This job role revolves around the clients allowing their products to sell by enabling the export and import of the products to understand and assurance that banks will be acting as guarantors for secure transactions. It is carried out through products like Standby Letters of Credit etc. 

The specialist of trade’s role includes selling and negotiating products to clients. 

It is not too complex to handle but certainly requires attention because of the high transactional services. If there are too many clients, you will be settler improvising issues between different countries, things and laws getting tough sometimes. 

2. Funding Trade 

It is the part of a role where the financing for trade comes into the limelight. It is a transactional process where finances and details are discussed at the deal’s commencement. 

3. Structured Trade Finance 

This part is quite interesting because it deals with more complex transactions. Structured Trade Finance also defines Bespoke Trade Deals, which require complex working and coordination in a teamwork setup. Sometimes, this can call for a structured plan to work by integrating various products to create custom solutions for clients to trade. 

Career Paths 

Trade Finance is a good option from a career perspective. With tons of growth opportunities to the working hours and salary, everything seems quite impressive. The more expert you are at your job, the more excellent future you will have.  

1. Organic Growth 

Get more experience, work along the vertical chain, practice with full potential, and you’ll be fetching more clients with an increase in your revenue. Eventually, this will attract huge bonuses and salary increments as an award to your hard work with smartness. You will also begin handling teams and even rise to head positions from regional to global trade.  

Organic growth is easy to obtain in Trade Finance if you are equipped with knowledge regarding regulations and products. 

2. Moving up the Value Chains 

In this, you have the choice of growing segment by segment. You start by handling the SME segment where the revenue and the product working is limited. After you feel you have enough experience, and when you start getting more clients, you can choose to work in large client segments. Always remember, in the banking work structure, it’s believed the more you bring revenue, the high you get paid. Therefore, increase your knowledge, handle clients, and grow with the bringing revenue. 

3. Corporate Jobs 

Many clients have personal trade teams that help them with imports and exports. If you are too skilled, there are chances of recruitment or an offer letter. You can switch your company if you are looking for a change and a handsome salary. The best part is you are appointed at the position that suits your skillset, which generally isn’t provided otherwise in companies for the excellence you deliver. 

4. Opportunities Internationally 

The best reason to opt for Trade Finance is, it brings you many opportunities to work overseas. These opportunities will help you grow in your native and foreign countries, providing an edge to your working profile. You will also have a profound knowledge of various trade and regulatory laws of different countries. It will make you highly competent for any head position.

Investing money has always been a concerning element due to the lack of proper information and tools reflecting the market’s accuracy.  

Finance is… 

The word finance deals with managing money with a goal in mind. Finance also highlights the importance of planning before investing. As a term, finance has a broad spectrum which is categorized in three levels, ranging as: 

1. Personal Level talks about managing money for personal benefits, including how, where, and when to invest money. It also dictates how to earn money with guidelines on putting in savings, uses, and borrowing. 

2. Government Level deals with generating revenue for the government. It includes the formation of budget, amount of taxes to ask for, any governmental debt, total spending by the public, distribution, and production of public goods is all taken care of under this category.  

3. Business Level deals with finance in real terms. It is believed that business can make you more knowledgeable about finance. This level believes in the power of decision as you need to focus on what and hows. For example, you need to decide how you can raise and manage money for investment and short term cash flows. Also, it requires you to choose the medium of what possessions you are ready to invest with, and if you are willing to expand your business, then how to reinvest in it. 

Trade Finance is… 

Trade Finance deals with trade transactions for both the international and domestic type and, it also concerns the financing required for the trade.  

The Four Pillars 

1. Payment  

Trade Finance is responsible for carrying mechanisms that facilitate and enable secure, timely, and verified payments across the globe’s routes in exchange for trades. /p>

We are aware that all monetary institutions and banks are part of SWIFT as members. 

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, enabling registered members worldwide to share the financial transaction information through receiving and sending either side in a reliable, secure, and trusted environment.

It is a member-based organization responsible for the information based on transactions, following the standard format, and transmitting instructions for payments and text messages. It is responsible for carrying out simple electronic fund transfers to the most complex finance trade instruments. 

Trade Finance tools deal with the transmission of payments and are responsible for defining prearranged conditions to avoid future possible risks or troubles between importers and exporters. 

2. Risk Mitigation 

Trade finance tools are well equipped and can reduce extreme risks in adverse conditions. There are a few risks that are commonly faced. The instruments involved in the process assist exporters and importers with risk mitigation techniques. The risks are: 

1. Commercial Risk involves non-performance of either parties or the bank. 

2. Country Risk involves revolution, civil unrest, financial crises faced by the other side. 

3. Currency Risk involves the fluctuation in exchange rates, which can destroy any profit into a loss deal.  

3. Financing 

The instruments are versatile and flexible. Funds can be borrowed or structured under contract. The trade of financial instruments include: 

1. Open Account 

2. Supplier Credits 

3. Advance Payments 

4. Loans are direct 

5. Credits documentation 

6. Collections Documentation 

7. Export Credit Agency Lending 

8. Factoring 

4. Provision of Information 

It is the final pillar of trade finance and the most important. It helps in providing accurate information necessary to carry out various trade functions. Any business requires a detailed analysis of the movement of goods per transaction flow, which allows them to lessen risk factors from arising shortly and maintain their competitive edge. 

Introduction 

• International trade can prove to be extremely complicated due to its intricacies and tricky regulations 

• The situation has become even more complex after the arrival of COVID-19, as exporters are now expected to comply with even stricter guidelines 
• The time taken to ship products has also gone up, as has the cost 

• These factors are proving to be detrimental for new players who are looking to enter the export market 
• Even though exporting is quite hard, there are ways in which the entire process can be simplified 
• This blog discusses the key aspects that make exporting such a tricky task. At the same time, the blog also focuses on potential solutions that could reduce these complicacies to an extent 

The Complicacies of Exporting 

• There are several reasons why exporting is so hard. Some of these have been discussed below: 

• The first and foremost reason is that exporting requires you to deal with a counterparty that is not located near you. Exports are typically done to countries that are located thousands of miles away from you. In such a case, it can be tricky to keep track of shipments and payments 
• Secondly, there are also language and culture barriers to overcome. Since your counterparty is located in a different country, it is not always easy to understand their language and their way of thinking. This could result in misunderstandings and conflicts 
• Thirdly, each country has its own sets of rules and regulations. You must be fully compliant with all of these regulations if you are to ensure a smooth transaction. Exporters can find it hard to keep track of all these regulations  
• Further, exporters should also be aware of the different terminologies that are used in the field of trade. This is extremely important in order to make sure that both parties are on the same page 
• Despite the above complicacies, exporting can be worth it if you make smarter decisions. Here are a few pointers that could help you in doing so: 

• The most important factor is to choose the right partner. Even if you are located thousands of miles away, you must find a counterparty that is honest and transparent 
• Further, you could also make your life easier by taking the help of industry experts. Trade finance institutions could help you in minimising the risks associated with exports by providing certainty of payment under all circumstances 
• Another step that could help you in simplifying exports is to keep reading about the rules and regulations. If you remain updated about export laws of different countries, then you will be able to meet the compliance requirements without any issues 
• Thus, if you do follow the above steps, then you will be in a much better position. If executed in the right manner, then exporting is totally worth it. You just need to ensure that you are mitigating all types of risks before proceeding 

Conclusion 

• To conclude, exporting can appear to be quite hard at first glance. However, if you take the right approach, then these complicacies can certainly be overcome. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here. 

Introduction 

The International Islamic Trade Finance Corporation (ITFC) has launched a new trade finance instrument that helps small businesses in reducing trade risks 

The new instrument is basically a letter of credit (LC) confirmation that helps businesses that are located in the Islamic Development Bank (IsDB) member countries

This new instrument ensures that the exporter of a product gets a payment guarantee from a second bank. This protects the exporter against any issuing bank risk as well as country risk

This instrument also makes sure that the supply of goods and services remains steady under all circumstances 

This blog discusses the key aspects of the new instrument and analyses how it can help smaller businesses 

ITFC launches letter of credit confirmation product 

The new product focuses on private sector entities, especially small and medium-sized businesses 

These types of businesses face major risks related to international trade due to their relatively small size and limited availability of resources 

In case of any payment dispute, these businesses can face serious challenges related to cash flow, vendor payments, and even struggle to keep their critical processes running 

ITFC wants to eliminate these issues by ensuring that these companies get paid in all circumstances

This product ensures that the payment is secured from two trade finance institutions. Such multi-dimensional security helps the exporters in minimising risks related to trade

This new instrument could prove to be extremely useful for small and medium business because they will feel more secure in their overseas transactions 

In addition, the launch of these products could also prove to be beneficial for the overall trade finance industry as it will help in building the confidence of exporters around the world 

Finally, this new launch will also help the trade industry in recovering from the jolt that has been given to it by the coronavirus crisis. This new launch shows that trade finance institutions are committed to new product development in order to grow their business despite the global crisis 

Conclusion 

To conclude, this new launch could have a positive impact on the trade finance industry. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.