What is the Role Of Collateral Managers in Trade Finance

The world economy has undergone tremendous changes in the last few decades. This also saw a lot many changes in the consumption pattern of the people.

With the rise in the standard of living, loans became a part of life. This led to the rise of lending institution, which gave loans against collateral. As the number of borrowers increased, it led to a new situation, where lending institutions were handling an additional responsibility i.e. the collateral in its possession. This led to the rise of Collateral Managers.

With the passage of time we have been witness to the growth of many collateral management firms which have become increasingly important within trade finance. The main job of collateral managers is basically to look after collateral on behalf of a lender which is financing goods. With the help of a collateral manager, the lending institution can remain assured that goods, such as commodities etc. are being controlled in such a way that if anything goes wrong with the loan, for example defaulting on payments by the borrower, then in that case, the lending institution can auction the goods which are pledged for the loan, and sell them to recover the money which has been lent. Now days leading international collateral management companies are serving a growing international market for structured trade finance, where money is lent on the basis of the value of the underlying goods, rather than on the basis of the balance sheet of the borrower.
Despite the fact that, many financial institutions such as bankers, borrowers and warehouse men have dismissed collateral management as of no use and being too expensive, it has not been able to dampen many firms desire to use the services of collateral management companies. With the absence of totally secure physical commodity storage facilities, banks are obliged to find other institutions which can provide protection against physical risks. Also, they get protection against risks involved in moving the commodities about.

The following are some of the benefits of collateral management:

1. A collateral manager facilitates an understanding among borrowers, on the basis of their agreements.
2. A collateral manager offers a variety of warehousing solutions in compliance with rigorous standards.
3. A collateral Manager also manages issues of quality and provides value-added services to its customers.
4. Sometimes a collateral manager also issues non-negotiable warehouse receipts.
5. He is also helpful in imposing controls with the help of the collateral management agreement.

Along with the above benefits there are some additional benefits which are provided by the collateral manager. Many collateral managers also offer global insurance cover, which is very useful for smaller collateral management firms which depend on this cover, simply because their balance sheets are not large enough to provide succor, to the lending institutions.