Crowdfunding for trade finance?

Crowdfunding for trade finance?

Following the launch of the Trade Finance Market (TFM) platform, Geoffrey Wynne, a partner at Sullivan & Worcester UK LLP, considers the potential impact of the platform and highlights a few concerns and benefits of such a scheme.

Original news

Trade Market Finance platform

Trade Market Finance have launched an online market platform aimed at efficiently and transparently funding international trade with minimal risk.

What is the thinking behind this new platform?

The publicity describes it as granting quicker and cheaper access to funding for exporters while at the same time granting access to prospective investors in an easy way to produce good and guaranteed yields and a speedy return. It is not easy to see how this can be achieved without sight of the documentation which each party (exporter and investor) would sign. It is also not clear what is expected of the buyer. For example, does the buyer agree that its payment obligation under an invoice is an irrevocable payment undertaking?

This is of most concern to the insurer who seems to guarantee the buyer’s payment to the investor. This would be a great stride forward, but at what cost to the investor’s return?

How is the platform structured and what investments/investors is it targeting? Is this crowdfunding for trade finance?

It is exporter-led rather than buyer-led. This means the exporter loads up to the platform details of its invoices which are to be sold. The assumption must be that the exporter’s agreement with the platform satisfies all due diligence requirements about the receivable covered by the invoice—for example, payment is an unconditional obligation of the buyer, there are no sanctions issues, the goods are not dual use goods.

It also seems that investors are offered part as well as well as all of an invoice. Thus, there could be more than one investor interested in the receivable—crowdfunding is an interesting analogy. There will be legal issues to consider about the rights of investors to part payments and how to enforce payment

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About the author:

Neeta has been working as a paralegal in Banking and Insolvency for the past 4 and a half years.

She started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice Course. She moved to Lexis®PSL in April 2013.