Trade Finance Taxonomy

Following the successful publication of its Guide to Trade Finance in September 2020 with Trade Finance Global, ITFA felt the need to explore and explain more fully the trade finance universe for the benefit of its members, in an easy-to-understand and more comprehensive model.

Hence, the idea of having an exhaustive taxonomy was born.

For the first time, to the extent possible in this ever-changing environment, the whole ecosystem of trade finance has been laid out in a holistic diagrammatic manner showing the different areas, techniques and instruments involved in trade finance.

The result is impressive and deserves close study, but should not be daunting; we have organised each category and sub-category in a commercially logical and intuitive way. Grouped initially by primary or secondary market affiliation, we proceed to categorise each technique or practice as falling into either a funded or unfunded typology and then, where relevant, break these down into instruments or sub-categories. For example, Supply Chain Finance arises in the primary market, is funded and then broken down into payables, receivables and loan-based sub-categories. Receivables finance is then further described by referencing different techniques which use receivables as their base asset.

This taxonomy calls for further detail of each of the techniques or practices. Some of this is already available (see, for example, the work of ITFA and other associations on supply chain finance at the Global Supply Chain Finance Forum – Home of Supply Chain Finance Terminology), the ITFA Guide to Structured Letters of Credit and, of course, the Guide to Trade Finance referred to above.

Traditionally, primary and secondary markets have been quite siloed; the taxonomy brings them together. One of the benefits of visualising the trade finance universe thus, is to help identify the connections and synergies that exist between different areas of trade finance, thereby providing a menu of options which bankers and financiers can make available to their clients once they are aware of their existence and understand their workings. This educational effort is a central part of ITFA’s purpose and ethos, and with increasing consolidation and partnerships in the trade finance industry, the time for this education is more important than ever.

The Trade Finance Taxonomy is a joint publication by the ITFA Market Practice Committee chaired by Paul Coles and the Komgo Secondary Market Workstream led by Izabela Czepirska. The Trade Finance Taxonomy publication can be downloaded by clicking here.

ITFA would like to thank all contributors listed in the Authors Note across Citi, Crédit Agricole, Credit Suisse, ING, Lloyds, Mizuho, MUFG, Natixis, Pemberton Capital Advisors LLP, PrimaTrade, Rabobank, SMBC, Société Générale, Sullivan & Worcester and Swiss Re with special thanks going to Nataša Ruiter, Bert Verkerk, Geoffrey Wynne and the Media Partner: Trade Finance Global.