Announced: The ITFA Emerging Leader 2020

Earlier this year, ITFA’s Emerging Leaders Committee called out for trade finance projects and submissions for their annual competition. 2020 saw 19 impressive projects submitted. Once shortlisted down to five, voting commenced, with the industry assessing the project that would bring about the most significant contribution to the trade finance industry. TFG showcases the frontrunners, as well as this yeas’ winner, bagging the title ‘ITFA Emerging Leader 2020‘.

Duarte Pedreira, Chair, ITFA Emerging Leaders and Sean Edwards, Chairman, ITFA, told TFG: “One of ITFA’s critical undertakings is to prepare the next generation of trade financiers. Over the last three years the association has placed a significant effort in the development of its Emerging Leaders initiative and, as a result, we became the most active platform for the promotion of young talent in the trade finance industry. The ITFA Emerging Trade Financier of the Year Award is a corollary of this and in 2020 we really raised the bar with 19 projects submitted for the jury to consider, making this one of the most sought after accolades in the trade finance world.”

Rules of the game

The rules of the competition were simple: applicants had to be an Emerging Leader, and the project must bring about a significant contribution to the Trade Finance industry. Projects took many formats and were judged on their relevance and quality of content, level of innovation, accessibility, and creativity.

Charlotte Prior, Emerging Leaders Committee Member and part of the winning group from last years’ ITFA Young Professional’s competition, and Michel Meylacq, Emerging Leaders Committee Member, said: “The idea of the competition is to give an opportunity for efforts of young talents of the Trade Finance industry to be recognised, with winners receiving a certificate of achievement and an invitation to attend the ITFA Annual Conference.”

Following TFG’s coverage of the ITFA Young Professional competition last year, held in Budapest, Hungary, we uncovered the adapted (online) version of the competition.

The Runners Up

Julian Heaven – A guide to trade finance law

Julian’s guide included an introduction to different legal systems, an African regional case study, interviews with preeminent trade finance lawyers and a practical section giving industry specific advice on how best to approach a transaction in an unfamiliar jurisdiction. The objective of the guide was to provide new recruits with a basic theoretical, historical, and applicative understanding of law from a trade finance perspective.

Julian said: “I believe that Trade Finance is a social science which requires as much of an understanding about economics as it does geography and law. For example, take climatology, a subfield of physical geography dedicated to the study of weather patterns. Arguably, understanding this branch of geography is as important as understanding any branch of economics when it comes to analysing soft commodity trades.”

“Ultimately, I believe that for our sector to survive the looming exodus of talent, that the 38% of us that remain in the industry with less than 10 years’ experience will need to pool and leverage our collective knowledge. And so this is how I came to write a guide on Trade Finance Law aimed at helping new recruits within the sector navigate the jurisdictions in which they operate and the challenges they may face in the process.”

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Alex Mearing – Supporting SME trade using microfinance

Alex’s proposition was the production of a website interface in the microfinance tradition, which involved funders as partner institutions, and which approaches all the below problems.  

The website would couple domestic businesses with interested donators. However, instead of the funds going directly to the business, they would be held in an escrow account. Interested funders would then conduct their due diligence on the business & trade flows and would onboard the beneficiary as a client. The funder would then finance the trade directly whilst using the escrow funds as full/partial security on which they can call on in the event of default. Otherwise, the donated security funds are returned to the donators at maturity.

Alex said: “I’ve been interested in crowd-based financial solutions for some time and it strikes me that there is real potential unexplored, particularly for open account trade. What piqued my interest specifically is that this product has observed a 98% repayment rate despite the apparent obstacles.

“Two of the key factors driving the trade finance gap are credit risk and SME knowledge of trade products. The primary benefit of structuring a crowd-based financial solution like this is that, unlike a single donator-donatee loan, the escrow security can be used to secure the financing of a potentially infinite volume of repeated trade flows under the same donation. In addition, though donations are charitable, there is likely to be an extremely high repayment rate. This solution could a) hedge/remove obligor credit risk and thereby permit greater funding volumes and b) encourage new client relationships, thereby increasing the wider understanding of trade products, potentially cushioning the fallout from COVID-19 and supporting trade into the future.”

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Team Texel – The Lifecycle of a Trade

The group have produced a short video to document the ‘life cycle’ of a trade. Everybody who joins the trade finance industry will be very familiar with the traditional diagram of how a Letter of Credit operates – this is certainly something which all new starters at Texel will go through many times when they begin their careers.

The team said told TFG: Whilst not attempting to reinvent the wheel we chose to address the most basic and fundamental mechanics of the Trade Finance Industry in a modern and comprehensive way. ITFA and the Emerging Leaders programme have a responsibility to ensure that our industry continues to attract top talent and grows, our project aims to make that first step towards the sector all the easier and more accessible.

We thought that it would be useful to produce a diagram which includes a credit insurance policy purchased by a Confirming Bank operating alongside this, to show how CRI can be a useful and effective tool for banks operating in the trade finance space. There is scope to expand the diagram to also indicate how credit insurance can also benefit other parties in the trade, including the issuing bank and exporter, but for simplicity’s sake we have kept to the Confirming Bank only.

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Alejandro Battistotti – A new asset class in trade finance?

Alejandro’s project is called ‘A New Asset Class in Trade Finance?’ and it proposed the notion that if properly structured to appeal to institutional investors, trade receivables and trade finance assets in general, can become a new trillion-dollar institutional asset class and potentially a way of tackling the Trade Finance gap.

The paper explored how the interplay between the Basel Capital Framework and Solvency II created the necessary platform for non-bank capital to finance the real economy. The regulatory design which has been pressed forward by COVID19 economic downturn has increased the trade finance gap and the need for working capital, widening spread for TF assets and creating further financial incentive on top of the aforementioned regulatory intention. In a negative rates environment, trade receivables (and trade finance assets in general) present a superb relative value opportunity for institutional investors. The main idea of the paper, however, is that no matter how attractive this opportunity seems, most institutional investors may not wish to digest each and every of risk inherent to financing the real economy and hence the need to properly structure Trade Finance assets in a way that is coherent with the risk, capital and operational considerations that affect institutional investors.

Alejandro said: “If properly structured, Trade Finance assets offer a superb relative value opportunity versus traditional credit while being extremely efficient from Solvency Capital perspective. The project underlying premise is that the regulation and the market came to the point in which Trade Finance players have to embrace capital market standards if they want to financeable and institutional investors need to embrace the real economy if they want positive returns. If these is achieved the trade finance gap might be solved for good.”

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And the winner is…Didem Erdogan

Didem Erdogan – ECA support for software exporters

With the growth of international trade software, Erdogan’s project aimed to understand Export Credit Agencies’ (ECAs) export credit and insurance support for the software sector. She conducted research of 51 ECAs / Development Banks all around the world, and also conducted a survey where 71 current or potential software exporters participated to accurately identify the needs of the software exporters.

The results of the research showed that whether related to credit or insurance, it was obvious that software export is not sufficiently supported by the ECAs whose main goal it is to contribute their national export volumes. The barriers for supporting software by the ECA’s around the world stem from one fundamental difference: there are no procedures that are appropriate for the different nature of software as an export item. As a solution, I came up with an idea that it is necessary to first establish a standardization in classification and measurement method and then to introduce new solutions in line with the needs of software exporters so that ECAs would be able to easily support software exports, and thanks to this success, many countries will benefit from converting themselves to the information society and the increase in world trade volume.

Didem said: “I am both happy and surprised to be a winner of this year since Software Export Support in the trade finance area is not generally sufficiently supported, especially by the Export Credit Agencies. However, from this point of view, I can say that distinguishing deficiencies in the trade finance and ponder for the correction of them makes a huge difference. In this sense, I also recommend the Future Emerging Leaders to think about what it takes to adapt the field of trade finance to the changing world and to come up with solutions.

The software industry, which is becoming more and more important with the impact of digitalization, globalization and other transformations, has become a part of daily lives with the Industry 4.0 concept. The ever-marching spread of the internet, the ease of storage, streaming and processing services have all contributed to the further development of the software industry. Nowadays, every item used is made “smart” thanks to software, and the economies of the countries are leaping forward with the successes in this industry.

Moreover, in less than a century the software market has shown a sharp increase by reaching a multi-billion-dollar industry, and even if trade volumes of software are significantly underestimated – because its trade is usually based on the value of physical goods rather than content and is often bundled with computer hardware – while the share of telecommunications services has declined, computer services receipts have reached more than double in value between 2008 and 2018.”

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A special mention to: Mohamed Elnaggar

Mohammed Elnaggar – Negotiable Instruments are going through a makeover

Mohamed’s article “Negotiable Instruments are going through a makeover – the who, what, where, why” was written for Trade Finance Global and published in Trade Finance Talks. The program aims to introduce new trade finance writers by allowing them to express their thoughts through producing a professional journalistic piece of content on pre-agreed topics defined by their editorial team.

Blockchain technology has been described as a game-changer in trade finance for its capacity to digitize the most complicated sector. But legal challenges hamper the transformation process, as current outdated laws in most countries and jurisdictions do not recognize the digital version of the negotiable instruments.

Mohamed said: “The article emphasizes the importance of negotiable instruments and their role in trade and supply chain finance. It sheds light on the current initiatives and efforts by market players like the ICC, BAFT, ITFA, and other technology providers who have up and running solutions that cover the legal concerns and ensure authenticity, traceability, security, and credibility.”

“The article raises a call to governments, law-makers, and other stakeholders to accelerate the adoption of “UNCITRAL MLETR” provisions besides applying the standards for verifying the electronic signature and other security aspects which will expedite the digital transformation in trade finance and cover the legal concerns.”

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Pedreira and Edwards added: “We would like to congratulate all of those who took part in this year’s competition, with a special emphasis to the 5 shortlisted projects and of course, Didem Erdogan from Turkexim Bank for winning in the brilliant way she did. Our commitment will continue to be focused on providing these Emerging Leaders with the visibility, knowledge and career tools they need to effectively become the next generation of industry leaders in trade finance.”

Members of ITFA can see the presentations of all runners up and the winners entry here.