The Economics of Structured Trade Finance in Africa

Structured trade finance is an important means of export and import financing, which focuses on transaction-based lending. The technique originated from the Latin American financial crisis in the mid-1980s and has since been seen as an innovative means of financing international trade. This financing does not rely solely on balance sheet analysis, government guarantee, and tangible assets as collateral but rather relies on the potential sale of the commodity for payment. Structured trade finance is particularly beneficial to developing countries, where there is limited access to conventional commercial finance. This chapter examines the economics of structured trade finance in Africa. It starts with a discussion on the evolution of structured trade finance. The chapter then explains what structured trade finance is, identifies the types of structured trade finance products, and shows how structured trade finance differs from conventional finance. It discusses the various structured trade finance instruments. It discusses the benefits of using structured trade finance and the challenges associated with it. The chapter also illustrates Africa’s experiences in structured trade finance and indicates the conditions for enhancing the use of structured trade finance in Africa.