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The Benefits of Microfinance

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In the 21st century it’s easy every now and then to slip into thinking “we’re all right”. Maybe it’s a sunny day, you check your iPhone for a nearby supermarket, pick up some supplies and have a nice picnic in the park and then browse the high street – maybe buying a new tie or a DVD or two. But in the grand scheme of things we’re not all right. Sure, the 21st century offers some terrific delights for first-world countries and first-world people, but, even in the most developed of areas, poverty and depression is rife. So just imagine what it’s like in parts of the world where it’s not as well developed. In some places it’s worse than ever. Not only are basic human rights a commodity, such as clean water, but these places can often be a financial mess. Good luck finding a decent paying job if you can’t even get water. A lot of unfortunate communities suffer poverty on multiple core levels, not just the ones you would immediately associate them with like the water shortage or illness – money is also a big factor too. It’s not just about donating £2 a month to a charity, either. That’s a great help in the short-term, but it’s not really targeting the economy.

Whether you think it’s right or not it is true that money does make the world go round. A good economic backbone is vital for any community to be allowed to thrive – and thus a good economy and a good state of finance is a basic human right, as without it the basics are unattainable. But economies are a big job to fix, right? Just ask the US, EU, Japan, or just about any country. But the economy doesn’t have to be made into Wall St. in the late 80s. Microfinance can help communities living in poverty get back on their feet, and give them a decent economic backbone to use in order to keep those feet there, and in a small, focused, and targeted way.

Essentially microfinance is financing in a small way, hence the “micro” prefix. Services included in the term are generally understood to be loans, savings, insurance and other basic financial services. Generally microfinance is the same as the financial services offered by banks that we are used to, and only really differ in its aim and scale. Banking is not something readily available to all people, so the aim of microfinancing is to be something that is available to all. Basic financial services can be a big help to a lot of people, so they should be available by all.

One of the key reasons why microfinance can be effective is the difference in perspective between first-world countries and impoverished countries. A difference in perspective of the economies. If you only have $40 to your name in the US, you’re pretty much broke. But for some people $40 can make a mind-blowing difference to your financial state. $40 can be enough to set up a business of some sort, and give you that little bit of a leg-up into a position where you make a little bit more money, and get a decent position sorted out for yourself. For only around $40. That is an incredibly small amount to most people, but microfinancing like that for some is just that little push they need. As with any loan, they will have to pay it back, but the small interest on the small loans makes it quite manageable.

The simple reality is that a regular bank simply won’t give out a loan to people with next to nothing to their name. And also standard banks don’t typically engage with loans of the scale that microfinancing does. A $40 loan is not something that would really fly with a bank – that’s just not the kind of thing banks do. By allowing people in poverty to access even a small amount of financing it can give some people the leg-up to get out of a bad circle of poverty. It can stop people being too poor to get money by giving them some money in the first place.

And the great thing about injecting small amounts of money into the individuals of communities is that the community can grow as a whole into something more positive. For example, if people can set up their own small businesses, services or other communal fixture then everyone is benefiting – these can even lead to things such as improved water facilities, better general sanitation and delicious cafés.

You see, in developing countries where poverty is rife loans that are micro in nature can make a pretty big difference. As mentioned earlier, in economies like this only a small amount of money can be required to start up a business. And then that business can bolster the economy and be beneficial not only for the individual, but also for the economy of the community. Individual-wise, income generated from a small business can relieve immediate financial worries, such as education for children or simply putting food on the table. More widely though, not only can more businesses and services increase community variety and quality, but it can also stimulate the economy of a community directly by both increasing the amount of jobs but also because money generated by a local business usually goes back into that local community. All of this from a small microfinance loan. Microfinancing can be the bolt-cutters to cut the looped chain of poverty – especially large scale poverty within communities and countries.

The benefits of microfinance are quite widespread. Microfinance is a seed – a seed that once planted has the opportunity to grow into something magnificent, no matter the quality of the soil. Financing on small scale does not necessarily have to have small effects. In a world where only the smallest advantage is needed for one to thrive, microfinancing is just the thing to provide the small benefits that everyone needs and that everyone is entitled to as a basic human right.
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Barclays announces new trade finance platform for corporate clients

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Barclays announces new trade finance platform for corporate clients 1

Barclays Corporate Banking has today announced that it is working with CGI to implement the CGI Trade360 platform. This new platform will provide an industry leading end-to-end global trade finance solution for Barclays clients in the UK and around the world.

With the CGI Trade360 platform, Barclays will provide clients with greater connectivity and visibility into their supply chains, allowing them to optimise working capital efficiency, funding and risk mitigation. By utilising cloud based functionality for corporate banking clients, Barclays will also be able to offer a leading client user experience through easy access and real-time integration to essential information, combined with the latest trade solutions as the industry-wide shift to digitisation continues to accelerate.

This move underpins Barclays commitment to supporting the trade and working capital needs of their clients and reinforces a commitment to innovation that has been central to the bank for more than 300 years.

James Binns, Global Head of Trade & Working Capital at Barclays, said: “We are delighted to announce our move to the CGI Trade360 platform and to have started the implementation process. We have a longstanding partnership with CGI, and the CGI Trade360 platform will mean we can continue delivering the best possible trade solutions and service to our clients for many years to come.”

Neil Sadler, Senior Vice President, UK Financial Services, at CGI, said: “Having worked closely with Barclays for the last 30 years, we knew we were in an excellent position to enhance their systems. Not only do we have a history with them and understand how they work, but part of the CGI Trade360 solution includes a proof of concept phase, which is essentially seven weeks of meetings and workshops with employees across the globe to guarantee the product’s efficiency and answer all queries. We’re delighted that Barclays chose to continue working with us and look forward to supporting them over the coming years.”

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What’s the current deal with commodities trading?

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What’s the current deal with commodities trading? 2

By Sylvain Thieullent, CEO of Horizon Software

The London Metal Exchange (LME) trading ring has been the noisy home of metals traders buying and selling for over a hundred years. It’s the world’s oldest and largest metals market and is home to the last open outcry trading floor. Recently however, the age-old trading ring, though has been closed during the pandemic and, just a few weeks ago, the LME announced that it will remain so for another six months and that it is taking steps to improve its electronic trading. This news fits in with a growing narrative in commodities about a shift to electronic trading that has been bubbling away under the surface.

Something certainly is stirring in commodities. The crisis has affected different raw materials differently: a weakening dollar and rising inflation risks bode well for some commodities with precious metals being very attractive, as seen by gold reaching all-time highs. Oil on the other hand has had a tough year and experienced record lows from the Saudi-Russia pricing war. It has been a turbulent year, and now prices look set to soar. While a recent analyst report from Goldman Sachs predicts a bullish market in commodities for the year ahead, with the firm forecasting that it’s commodities index will surge 28%, led by energy (43%) and precious metals (18%).

Increasingly, therefore, it seems that 2020 is turning out to be a watershed moment for commodities, and it’s likely that the years ahead will bring about significant transformation. And whilst this evolution might have been forced in part by coronavirus, these changes have been building up for some time. Commodities are one of the last assets to embrace electronic trading; FX was the first to take the plunge in the 90s, and since then equities and bonds have integrated technology into their infrastructure, which has steadily become more advanced.

The slow uptake in commodities can be explained by several truths: the volumes are smaller and there is less liquidity, and the instruments are generally less exotic, essentially meaning it has not been essential for them to develop such technology – at least not until now. This means that, for the most part, the technology in commodities trading is a bit outdated. But that is changing. Commodities trading is on the cusp of taking steps towards the levels of sophistication in trading as we see in other asset classes, with automated and algo trading becoming ever prominent.

Yet, as commodities trading institutions are upgrading their systems, they will be beginning to discover the extent of the job at hand. It’s no easy task to upgrade how an entire trading community operates so there’s lots to be done across these massive organisations. It requires a massive technology overhaul, and exchanges and trading firms alike must be cautious in the way they proceed, carefully establishing a holistic, step-by-step implementation strategy, preferably with an agile, V-model approach.

The workflow needs to be upgraded at every stage to ensure a smooth end-to-end trading experience. So, in replacement of the infamous ring, these players will be looking to transform key elements of their trading infrastructure, including re-engineering of matching engines and improving communications with clearing houses.

However, these changes extend beyond technology. For commodities players to make a success of the transformation in their community, exchanges need to have highly skilled technology and change the very culture of trading. All of which is currently being done against a backdrop of lockdown, which makes things much more difficult and can slow down implementation.

What is clear is that coronavirus has definitely acted as a catalyst for a reformation in commodities. It is a foreshadowing of what lies ahead for commodities trading infrastructure because, a few years down the line, commodities trading could well be very different to how it is now, and the trading ring consigned to history.

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Afreximbank’s African Commodity Index declines moderately in Q3-2020

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Afreximbank’s African Commodity Index declines moderately in Q3-2020 3

African Export-Import Bank (Afreximbank) has released the Afreximbank African Commodity Index (AACI) for Q3-2020. The AACI is a trade-weighted index designed to track the price performance of 13 different commodities of interest to Africa and the Bank on a quarterly basis. In its Q3-2020 reading, the composite index fell marginally by 1% quarter-on-quarter (q/q), mainly on account of a pull-back in the energy sub-index. In comparison, the agricultural commodities sub-index rose to become the top performer in the quarter, outstripping gains in base and precious metals.

The recurrence of adverse commodity terms of trade shocks has been the bane of African economies, and in tracking the movements in commodity prices the AACI highlights areas requiring pre-emptive measures by the Bank, its key stakeholders and policymakers in its member countries, as well as global institutions interested in the African market, to effectively mitigate risks associated with commodity price volatility.

An overview of the AACI for Q3-2020 indicates that on a quarterly basis

  • The energy sub-index fell by 8% due largely to a sharp drop in oil prices as Chinese demand waned and Saudi Arabia cut its pricing;
  • The agricultural commodities sub-index rose 13% due in part to suboptimal weather conditions in major producing countries. But within that index
    • Sugar prices gained on expectations of firm import demand from China and fears that Thailand’s crop could shrink in 2021 following a drought;
    • Cocoa futures enjoyed a pre-election premium in Ghana and Côte d’Ivoire, despite the looming risk of bumper harvests in the 2020/21 season and the decline in the price of cocoa butter;
    • Cotton rose to its highest level since February 2020 due to the threat of storm Sally on the US cotton harvest, coupled with poor field conditions in the US;
    • Coffee rose 10% as La Nina weather conditions in Vietnam, the world’s largest producer of Robusta coffee, raised the possibility of a shortage in exports.
  • Base metals sub-index rose 9% due to several factors including ongoing supply concerns for copper in Chile and Peru and strong demand in China, especially as the State Grid boosted spending to improve the power network;
  • Precious metals sub-index, the best performer year-to-date, rose 7% in the quarter as the demand for haven bullion continued in the face of persistent economic challenges triggered by COVID-19 and heightening geopolitical tensions. In addition, Gold enjoyed record inflows into gold-backed exchange traded funds (ETFs) which offset major weaknesses in jewellery demand.

Regarding the outlook for commodity prices, the AACI highlights the generally conservative market sentiment with consensus forecasts predicting prices to stay within a tight range in the near term with the exception of Crude oil, Coffee, Crude Palm Oil, Cobalt and Sugar.

Dr Hippolyte Fofack, Chief Economist at Afreximbank, said:

“Commodity prices in Q3-2020 have largely been impacted by COVID-19. The pandemic has exposed global demand shifts that have seen the oil industry incur backlogs and agricultural commodity prices dwindle in the first half of the year. The outlook for 2021 is positive however conservative the markets still are. We hope to see an increase in global demand within Q1 and Q2 – 2021 buoyed by the relaxation of most COVID-19 disruptions and restrictions.’’

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