An Alternative Model of Trade Finance

The idiosyncratic model of the Pacific and the institutional scaffolding of Manila’s capital market, combined with the abundance of liquidity and the long distances involved in the trade, resulted in a specific approach to riskriskmitigation mitigation in the Pacific. As the financial centre of the line, Manila’s institutionsinstitutions were fundamental in internalising and distributing the risks associated with the trade, both in its Asian and American legs. The institutional structure provided solutions to the principal-agentprincipal-agent problem problem and the riskriskloss at sea of loss at sea, while the business model greatly mitigated the potential market riskriskmarket. Together with the canoncanon lawical-inspired financial vehicles and the role of lay confraternitieslay confraternities as financial intermediariesfinancial intermediaries, Manila managed to create the conditions through which individuals could pool their savings into trade finance. The continuous accumulation of proceeds and opening of new legacy fundslegacy funds quickly resulted in an increasing offer of working capitalcapitalworking for trade at a time when the business model of the Pacific crossing restricted its volume, leading to falling prices for capital and easing the specialisation of the city as a financial centre.