Who lends to commodity borrowers without a track record?

So coming back to the subject, um, of the SMEs, having crossed from a lender side to a corporate side six years ago, um, this is a very interesting topic.

Um, I have made some notes, but I'll try not to refer them too much.

I just didn't want to lose, uh, to leave anything out, and I will definitely keep to time.

[laughs]

Um, so a lay per- a lay person would imagine that a risk appetite from banks to lending, um, is only driven by risk considerations.

However, the practical experience of most of you, us, in the room, uh, would prove that conjecture otherwise.

Um, more often than not, regulatory angle is just as influential.

If a product is rated illiquid, reduced profitability for banks will lead to shi- to a shift i- to structured trade.

However- Structured trade means collateral monitoring, which requires infrastructure.

Infrastructure means middle office, which means costs.

So for my part, I would like to debate why perfectly good trades, uh, at the SME level often struggle to obtain funding and what practical solutions the finance world, um, can offer or can be offered to bridge that gap.

A farmer, a trader, a s-- a processor, a supply chain manager, uh, may have a profitable contract.

However, it can be in challenging jurisdictions.

The gap between paying the suppliers and receiving sales proceeds from the end buyers used to be a hundred and eighty days, but now in the current geopolitical climate, I think we all know it's considerably longer.

As a result, SMEs are largely asset rich, cash poor.

Solution: finance the trade, not the company.

In our case, to improve access to competitive liquidity, we segregated assets into asset classes and found the best product, liquidity product for each.

For example, in receivables finance, lenders finance invoices owned by, uh, strong buyers.

So instead of asking, "Is the SME strong enough?" They ask, "Is the buyer strong enough?" In inventory finance, warehouse receipts and controlled stock structures allow lenders to lend against commodities and products.

Looking at the two in combination, you get a borrowing-based structure where funding is linked to current assets rather than property and equipment.

Technology is, of course, changing access to liquidity, and that's where it really comes into play.

And where we really see the advantages of tech is real-time inventory monitoring and automi-automated collateral reporting.

Trust is underpinned by control and no longer relies solely on relationships, and so it shouldn't.

Trust is increasingly created through data, and this will truly unlock finance for sto-- for supply chains at scale.

So what needs to happen next? For banks, there needs to be a move away from balance sheet corporate lending to cash flow and asset-backed structures.

So coming back to the subject, um, of the SMEs, having crossed from a lender side to a corporate side six years ago, um, this is a very interesting topic.

Um, I have made some notes, but I'll try not to refer them too much.

I just didn't want to lose, uh, to leave anything out, and I will definitely keep to time.

[laughs]

Um, so a lay per- a lay person would imagine that a risk appetite from banks to lending, um, is only driven by risk considerations.

However, the practical experience of most of you, us, in the room, uh, would prove that conjecture otherwise.

Um, more often than not, regulatory angle is just as influential.

If a product is rated illiquid, reduced profitability for banks will lead to shi- to a shift i- to structured trade.

However- Structured trade means collateral monitoring, which requires infrastructure.

Infrastructure means middle office, which means costs.

So for my part, I would like to debate why perfectly good trades, uh, at the SME level often struggle to obtain funding and what practical solutions the finance world, um, can offer or can be offered to bridge that gap.

A farmer, a trader, a s-- a processor, a supply chain manager, uh, may have a profitable contract.

However, it can be in challenging jurisdictions.

The gap between paying the suppliers and receiving sales proceeds from the end buyers used to be a hundred and eighty days, but now in the current geopolitical climate, I think we all know it's considerably longer.

As a result, SMEs are largely asset rich, cash poor.

Solution: finance the trade, not the company.

In our case, to improve access to competitive liquidity, we segregated assets into asset classes and found the best product, liquidity product for each.

For example, in receivables finance, lenders finance invoices owned by, uh, strong buyers.

So instead of asking, "Is the SME strong enough?" They ask, "Is the buyer strong enough?" In inventory finance, warehouse receipts and controlled stock structures allow lenders to lend against commodities and products.

Looking at the two in combination, you get a borrowing-based structure where funding is linked to current assets rather than property and equipment.

Technology is, of course, changing access to liquidity, and that's where it really comes into play.

And where we really see the advantages of tech is real-time inventory monitoring and automi-automated collateral reporting.

Trust is underpinned by control and no longer relies solely on relationships, and so it shouldn't.

Trust is increasingly created through data, and this will truly unlock finance for sto-- for supply chains at scale.

So what needs to happen next? For banks, there needs to be a move away from balance sheet corporate lending to cash flow and asset-backed structures.