We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Structured Commodity Finance?

Gerelyn Terzo
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Structured commodity finance is a complex way of obtaining financing for the international trade of commodity products. Market participants include financial traders, producers of commodities such as energy companies and farmers, as well as investment bankers and risk management professionals. It involves the trade of certain commodities, ranging from oil to metals and agricultural products. There are unique risks associated with structured commodity finance, although this exposure is what drives activity. A transaction might involve one party extending a financial loan to a developing nation in exchange for the future delivery of some commodity products.

This form of financing typically is used when a market participant is doing business with a developing economy. The risks include the possibility that, even after a loan has been issued, an exporting nation will not be able to follow through with product delivery because of political or economic strains. This is a shift from traditional risk, which surrounds the chance that a borrower cannot make a financial repayment to a lender.

In traditional forms of financing, access to capital can be provided based on the client's financial stability. Structured commodity finance offers a different approach that instead focuses on a company's ability to follow through with an arrangement to deliver products. That track record, especially under harsh external conditions caused by a government or economy, can open the door to financing for companies in developing nations that otherwise might never have been possible.

On one side of a deal in structured commodity finance is a lending institution. This bank typically designs structured commodity products based on individual transactions. The party that represents the other side of this transaction in a developing country might include an oil producer or farmer.

It becomes the responsibility of the lender to perform sufficient background checks to determine the likelihood that a commodity delivery will in fact be made. Given that a producer might operate in a nation where a financier does not have a presence, a third-party firm might need to be involved to provide this assessment. Some of the conditions that can be evaluated include a supplier's realistic ability to produce the appropriate allocation of commodities. The viability of the exporter's operations also must be considered, including ensuring that a business has enough resources to compensate employees who are delivering commodities.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.