ICC Digital Library Forum

We all know that success of a nation's export program depends on the availibility of trade finance, which facilitates the transfer of commodities and manufactured goods between countries. Banks participate in trade finacing by providing pre-export financing, helping in the collection process, confirming or issuing L/Cs, accepting and discounting drafts.

In my opinion trade financing is less risky than conventional lending (e.g. overdraft, loan etc.) because a) most trade financing is short terms, b)operates with strong collateral and documentation requirements.

Do you [a] agree with my opinion, above and have any (other) reasons why trade financing is less risky than conventional lending.

I await the list of reasons, which will be most interesting i am sure.

Regards,

Shahed
Toronto

[edited 7/30/2009 4:19:20 PM: upgrade the writting]

The first strong reason is because Trade Financing is self liquidating meaning repayment come from underline Transactions itself. For eg: Pre Shipment financing under LC will be liquidated from the proceeds of Post shipment financing or after paid by the issuing bank. So Trade Financing is less risky comparing direct lending.