Structured commodity finance
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Short-term funding for commodity stocks or sales, repaid when the goods are sold, with the goods held as security.
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01 · In plain words
The goods and their sale repay the finance, so the deal rests on the commodity more than on the company
is short-term funding for goods traded on an exchange. It can fund goods in a warehouse or goods already sold. We call it SCF from here on. The money from selling the goods repays the finance, and the company has no other source of repayment (UNCTAD, citing Basel 2).
"Structured" means the deal has security and checks built in. This structure is designed to make up for a company whose own credit is weak (UNCTAD). In plain words, the provider relies on the goods and on the money from their sale.
SCF is built from simpler parts. One is , a loan against goods held in a warehouse. The provider takes security over those goods and some control of them (Global Supply Chain Finance Forum). Another is , a loan to a seller before the goods ship (Global Supply Chain Finance Forum).
Who is involved
- The producer, trader or processor. Its sale of the commodity repays the finance.
- The finance provider, such as a bank. It advances money against the stock, the sales or the goods before export.
- The warehouse operator or . It holds or watches the goods for the provider.
- The buyer, or . Its payment for the goods repays the finance.
- Sometimes a , such as IFC, shares the risk with the bank.
02 · How it works
Seven steps take the goods from the warehouse to the buyer, with the sale money repaying the provider
Figure 1 · Interactive
Structured commodity finance, step by step
Read down the steps. The last step is where the sale money repays the provider.
Source: steps assembled from Global Supply Chain Finance Forum, Loan or Advance against Inventory and the Basel 2 definition in UNCTAD, 2006. The order is illustrative.
03 · What it means for you
The producer or trader gets funds against its goods, and the buyer's payment is what repays them
Figure 2 · Interactive
What structured commodity finance means for each side
Choose your side of the trade.
04 · Worked example
Two lots of goods give a $1,150,000 collateral base, and a 10% price fall cuts the headroom to $35,000
This example uses round, made-up numbers. A company stores two lots: lot A worth $1,000,000 with a 20% margin held back, and lot B worth $500,000 with a 30% margin. It draws $1,000,000 at 5.00% a year for 60 days, counted on a 360-day year. Then prices fall 10%. The is the total lending value of the goods. Headroom is the extra money the company can still take out.
Figure 3 · Illustrative
Collateral base and headroom on two illustrative lots
Illustrative inputs. The headroom after the price fall is highlighted.
Made-up numbers, worked out by our checking script. Real margins and rates differ by provider, goods and deal.
05 · When to use it
SCF suits companies holding marketable commodities whose sale money can be controlled
Good fit when
- You hold a commodity that can be sold in a market, and the provider can control the sale money (UNCTAD).
- You can store goods in a warehouse that issues receipts, and you want to choose when to sell (IFC).
- Your own balance sheet is weak, so you need the structure to carry the deal (UNCTAD).
Another tool may suit better when
- Your goods have no ready market. Inventory finance covers marketable commodities and finished goods (Global Supply Chain Finance Forum). Look at purchase order finance or a trade loan.
- You only need a loan against stored goods, without the wider structure. Look at warehouse finance or inventory finance.
- You need money before you produce, repaid from a sale already agreed. Look at pre-export finance or prepayment finance.
06 · Rules and a real case
Model laws on warehouse receipts and security support SCF, and IFC runs a program that shares the risk
The UNCITRAL and UNIDROIT was adopted by UNCITRAL on June 26, 2024 and by the UNIDROIT Governing Council on May 8, 2024. It supports using goods as security while they sit in a warehouse (UNCITRAL). The UNCITRAL Model Law on Secured Transactions, from 2016, covers security over goods and receivables in the countries that adopt it (UNCITRAL). The Global Supply Chain Finance Forum sets the standard terms, in an ICC publication dated January 9, 2017 (ICC).
A real program. The International Finance Corporation, or IFC, runs the Global Warehouse Finance Program. IFC describes as a way for producers to get loans secured by their goods stored in warehouses. IFC shares up to 50 percent of short-term loans that banks make to farm commodity producers or traders against warehouse receipts or similar papers. IFC says this lets banks move their risk from a company's fixed assets to the commodities farmers produce (IFC program page, undated).
Summary
SCF funds commodity stocks and sales against the goods, and the sale money repays it
The provider lends part of the goods' value, holds security over them and watches them until they are sold. The buyer's payment repays the provider. The company gains funds that rest on its goods, and in return it accepts checks, reports and the risk that a price fall cuts what it can draw.
Related guides: Structured commodity finance; Inventory finance; Title and ownership in commodity trade; Financing agricultural commodity trade. Related cards: Warehouse finance (warehouse receipts); Pre-export finance; Asset-based revolving facility. Every term is in the Trade Finance Glossary.
Sources
- UNCTAD secretariat, Basel 2: The New Basel Capital Accord and its Impact on Commodity Financing in Developing Countries, UNCTAD/DITC/COM/2006/8, July 20, 2006. Supports: the definition, repayment from sale money, why the deal is structured, when it fits
- Global Supply Chain Finance Forum (ICC, BAFT, EBA, FCI, ITFA), Standard Definitions: Loan or Advance against Inventory, 2016. Supports: security and control over goods, warehouse receipts, margin of protection, monitoring and audit, short tenor, marketable goods
- Global Supply Chain Finance Forum (ICC, BAFT, EBA, FCI, ITFA), Standard Definitions: Pre-shipment Finance, 2016. Supports: the pre-export part, repayment date tied to the buyer's payment date
- International Chamber of Commerce, Standard Definitions for Techniques of Supply Chain Finance (publication page), January 9, 2017. Supports: the standard terms
- International Finance Corporation, Global Warehouse Finance Program (GWFP), undated. Supports: the real program, the 50 percent risk share, timing of sales, shift of risk to the goods
- UNCITRAL, UNCITRAL - UNIDROIT Model Law on Warehouse Receipts (2024), 2024. Supports: adoption dates, goods used as security in warehouses
- UNCITRAL, UNCITRAL Model Law on Secured Transactions (2016), 2016. Supports: security over goods and receivables
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: the 360-day year in the worked example
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