Trade finance

What is trade finance?

Trade finance is a range of banking solutions designed to facilitate international trade transactions for importers and exporters.

What is the scope of application of trade finance?

The scope of application of trade finance is wide and diversified.

The term "trade" refers here to the securing of transactions, both for exporters and importers. It includes solutions that reduce the risks incurred by both exporters (counterparty risk, for example) and importers (delivery risk). Documentary credit and international guarantees can be useful in covering these different risks.
The term "finance" refers to the problem of financing working capital requirements (WCR), which is more pronounced in international trade than in domestic trade. This financing can take two forms:

1. pre-financing (financing before shipment of the goods) which is obtained, for example, against the issue of market guarantees (advance payment guarantee);

2. post-financing, which allows the exporter to grant significant payment delays, while being paid on sight, which in turn also constitutes a source of post-financing for the importer. In concrete terms, discounting or mobilization of documentary credit meets this objective.

What is green trade finance?

Green trade finance is increasingly being discussed. How is it positioned in relation to trade finance?
The term "green" here refers to environmental issues, one of the essential components of Social and Environmental Responsibility (SER). As soon as the transaction (underlying) is part of a project to promote the environment (e.g. wind farm, improved water management, clean transport, etc.) and trade finance solutions are involved in this project (documentary credits, international guarantees), we speak of green trade finance.