Trade Finance Forum › Forums › Trade Finance › Basics › I’ve heard that microfinance can be a powerful tool for promoting trade and economic development in emerging markets. Can you explain how it works, and what are some examples of successful microfinance initiatives?
May 3, 2023 at 1:13 pm #2271Alvin AdamParticipant
I’ve heard that microfinance can be a powerful tool for promoting trade and economic development in emerging markets. Can you explain how it works, and what are some examples of successful microfinance initiatives?May 3, 2023 at 1:17 pm #2275Aadhira ACCParticipant
Microfinance is a type of financial service that provides small loans, savings, and other financial services to low-income individuals or groups who do not have access to traditional banking systems. Microfinance initiatives aim to promote economic development and poverty reduction by enabling individuals to start or expand small businesses, build savings, and manage financial risks.
Microfinance institutions (MFIs) that specialize in trade finance provide small loans to traders and small businesses to help them purchase inventory, cover transportation costs, and manage cash flow. The loans are typically short-term and are repaid once the goods are sold. Interest rates on microfinance loans are typically higher than traditional bank loans to cover the cost of servicing small loans.
MFIs that specialize in trade finance often work closely with local traders and suppliers to identify potential borrowers and assess the risk of lending to them. They also work to build relationships with local suppliers and other businesses to help traders access the goods and services they need to grow their businesses.
One example of a successful microfinance initiative in the trade finance industry is the African Export-Import Bank (Afreximbank). Afreximbank provides trade finance to small and medium-sized enterprises (SMEs) across Africa, including small-scale traders, manufacturers, and exporters. The bank provides a range of financial services, including trade finance, working capital finance, and export credit insurance. Another example is KRATOS, a platform offered by fintech company Triterras, that offers successful microfinance initiative in the trade finance industry. KRATOS connects SMEs with institutional investors who are looking to invest in trade finance assets. Through the platform, SMEs can access short-term trade finance loans, supply chain finance, and other forms of financing. The platform uses blockchain technology to provide transparency and security to transactions, and also offers risk management services to help investors manage their exposure to risk.
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