Trade Finance and Trade Instruments

What trade finance is
  • Purpose: To facilitate and de-risk transactions between buyers and sellers in international trade.
  • Function: It uses a variety of instruments, insurance, and financing solutions to manage the risks and complexities involved in moving goods and money across borders.
  • Role of financial institutions: Banks and other financial institutions are key intermediaries that help manage documents, verify shipments, handle payments and provide financing.
Common techniques and solutions
 
Trade Finance Instruments
  • Letters of Credit (L/Cs) : A common method where a bank guarantees payment to the exporter once the importer’s conditions are met, such as the proper delivery of goods. This reduces the risk for both importers and exporters by providing guaranteed payment upon compliance with specified terms and conditions.
  • Trade Loans: Loans that provide working capital, in some cases, to cover the period between paying a supplier and receiving payment from a buyer.
  • Advance Payment Guarantees: A method where the buyer pays the supplier before goods are shipped; for example, payment made to contractors or suppliers This protects the supplier but carries risk for the buyer. This instrument safeguards against the risk of non-delivery or non-performance. 
  • Bank Guarantees (BG) : A bank guarantee is a commitment from a financial institution to cover one financial obligation if a party in a transaction defaults. Bank guarantee helps businesses acquire goods, engage in international trade, and increase access to cash flow by reducing perceived risk in transactions. Besides its use in international trade, it is also used to secure performance in the construction of real estate and infrastructure projects.
  •  Standby Letter of Credit (SBLC) : A Standby Letter of Credit (SBLC) is a bank guarantee that acts as a safety net for a transaction, promising to pay the beneficiary if the applicant fails to fulfill their contractual obligation. Unlike a traditional Letter of Credit, an SBLC is a “standby” payment method used only in the event of default such as non-payment or failure to perform a contractual duty.
  • Performance Guarantees : Also known as Performance bond, is a financial instrument against non-performance of contractual obligations, providing security for project owners and beneficiaries. 
  • Suppliers’ Credit: Supplier’s Credit is a form of trade credit used in international trade. Here the supplier allows the importer to purchase goods and pay for them at a later date, typically 90 to 180 days. To reduce the risk of non-payment, the supplier will request the importer to open an L/C issued by the importer’s bank. This confirms to the supplier that payment will come at a certain future date.  It’s always an advantage to importers in general, particularly those located in Africa and importing from China, to use the services of Trade Finance Company,in conjunction with the instrument providers, international banks like HSBC, Standard Chartered Bank of China, Standard Chartered Bank and the Development Bank of Singapore (DBS) and Commerzbank of Germany, to open an L/C or any trade finance instrument, where no collateral is required and the transaction cost is low, rather than through a financial institution in their country where collateral is required and transaction cost is much higher.
Factors Limiting Access to Trade Finance Opportunities for Importers from Africa Region
 
According to an article published in CEDAR blog., on September 26th, 2025, titled “The African Trade Finance Crisis: When Cross-Border Payments Become a Trust Game“.
This article cited some of the major problems that African importers are facing in international trade, including the following, summarized as follows:
 
1. Trust gap 
As a result of currency volatility in the region, this has created a “trust gap” between African importers and overseas suppliers.
 
2. Bank financing
Bank financing in African markets has been so severely constrained that many importers have to pay entirely upfront or scramble for scarce foreign exchange in ratione markets. Banks in many African markets finance just 25% of goods trade, far below the 60-80% financing rates seen in developed countries. As a result, an annual trade finance gap is estimated at 100-200 billion USD ,with SMEs – which comprise 80-90% of African businesses – bearing the brunt of this shortage.
 
3. Lack of access to Trade Finance Instruments
African importers generally lack access to traditional instruments like Letters of Credit and Bank Guarantees, forcing them into precarious arrangements. Collateral requirement, as the primary condition for the issuance of any of these instruments, has also compounded the problem.
 
4. Overseas Suppliers Are Demanding Certainty
Due to high rejection rates for trade finance, overseas suppliers increasingly demand guaranteed payments before shipping goods. However, African buyers lacking bank credit cannot provide these assurances, creating a standoff that stifles trade.
 
5. The Cost of Infrastructure
Even when traditional finance instruments are available, they come at a premium that many African businesses cannot afford. Letters of Credit in African markets typically cost 2-4% per transaction – an order of magnitude higher than 0.25 – 0.5 %rates common in advanced economies.
 

 

Our Solutions

To mitigate the issue of lack of access to trade finance instruments, cited in Cedar blog of September 26th, 2025, we have partnered with Trade Finance Company (TFC) in collaboration with reputable international banks in Europe, Asia, the Caribbean, and the U.S. to make trade finance instruments easily accessible and affordable to African importers and other small businesses.

We have removed barriers such as the need for applicants to have cash/collateral, bank accounts, high fees associated with the issuance of instruments, delays in processing time, and other regulatory compliance requirements put in place by local banks in the applicant’s country, among other limitations.

These measures create opportunities for importers to have easier access to trade instruments, thereby helping them compete in international trade. It also helps other users who are not involved in international trade but need instruments in the course of doing business.

Buyer's Credit Finance

Buyer’s Credit Finance is a form of import financing where a foreign buyer secures a loan to purchase goods or services from an exporter, often with favorable terms. The financing is typically facilitated by the exporter’s bank, sometimes with support from the Export Credit Agency (ECA) in the exporter’s country. It allows the importer to access cheaper foreign funds and provides the exporter with immediate payment..
 
Buyer’s Credit Finance is commonly used to finance capital goods and services, for example, machinery, tools, vehicles and equipment, etc. If your business is located in Sub-Saharan Africa, you import capital goods and consumer products, in few cases, for example, Italy and Turkey, and you meet the funding requirements, you may be eligible to apply for Buyer’s Credit financing of up to 85% of the cost of the item, from any of the following countries if you are buy the product from there; for example: China, Germany, Switzerland, Sweden, France, Italy, Turkey and United States, among other countries.