The Business Times

Greensill as a cautionary tale

Published Thu, Apr 1, 2021 · 05:50 AM

FOR many supply chain players, particularly SMEs, Greensill Capital's seemingly overnight fall as a fintech pioneer has further complicated the supply chain finance industry's reputational issues. Last year, Singapore saw more than a handful of commodity trade finance fraud cases, with Hin Leong being the most notorious: creating a purported S$3.85 billion exposure for up to 23 banks and a number of other market participants.

The global trade finance market size was valued at US$8,942 billion in 2019. While the market has contracted to US$7,617 billion in 2020 due to, among other things, the Covid crisis, it is nonetheless expected to reach US$10,427 billion by the end of 2026.

Banks and credit insurers remain the fundamental players in this space. Greensill, as an alternative provider, using the concept of receivable securitisation, has made this asset class more accessible to private investors. However, structural problems such as transparency, verification, and proper risk mitigation controls have long since existed in the trade finance industry.

In Greensill's case, concentration risk towards specific clients, lapsed insurance policies, and the contentious debate about treating "reverse factoring", led to its demise. In Hin Leong's case, it was, reportedly, fraudulent trade transactions, "teeming and lading" by obtaining funds from banks through discounting or other forms of financing to generate working capital. Although most commodity fallouts, like Hin Leong, are removed from wider individual or society effects, that cannot be said of Greensill where its namesake bank have impacted the deposits of its municipal and public clients in Germany, proving contagion risk.

Though such issues cannot be fixed overnight, the Singapore government has recognised that the Covid pandemic has revealed vulnerabilities in the global supply chain ecosystem. For fast, high-impact, effective reform, regulators cannot work alone. Regulatory connectivity is as important as the trade connectivity itself.

In 2020, Singapore's Future Economy Council convened the Emerging Stronger Taskforce to review Singapore's economic strategies. The Taskforce formed a number of public-private working groups called Alliances for Action (AfAs) to look at seizing opportunities even amid Covid-19. The AfA on Supply Chain Digitalisation was formed to examine how ecosystem players can participate meaningfully in the digital economy, to co-create a supply chain future that is trusted, efficient and resilient to enable robust trade growth. Through many workshops with more than 100 relevant stakeholders, it was identified that the significant inefficiencies in physical event, documentation and financial information flows across the value chain. In terms of these supply chain issues, over the years much work has been done to digitalise and streamline the processes for regulatory approval, freight movements and trade financing. The AfA is now undertaking the ambitious effort to bring all three parts together - and with both private and public sectors working closely together to co-create a supply chain future that is trusted, efficient and resilient to enable robust trade growth.


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By pushing towards digitalisation and allowing for open and trusted sharing of data across the fragmented supply chain ecosystem, the AfA seeks to improve trade financing integrity and the productivity of logistics dependent players and facilitate freight exchanges and more competitive financing for SMEs as well as the global traders, shippers and energy companies.


So far, multiple initiatives have been kicked off - setting common data standards and protocols are the most difficult but most important. Hebert Hoover, as US Commerce Secretary in the 1920s, set the standards for nuts and bolts, laying the foundation for the roaring 1920s with mechanisation of the transport and industrial systems.

One of these is, utilising the concept of data sharing via a common data infrastructure, banks can access restricted data directly from trusted sources to detect and mitigate trade-related frauds. In addition, by building a digital trail of physical movements of goods, sellers, storage terminals and banks can have increased visibility of the trade process, the whereabouts of the goods, as well as their ownership and payment.

By focusing on present issues and resolving them using a combination of historical reflection to close loopholes, to investing and utilising of next-generation technologies including artificial intelligence, blockchain and Big Data, not only will the efficiency of business financing cycles be improved. Better transparency will also increase banks' and credit insurers' risk appetite, restoring confidence in the supply chain finance market.

However, as German and British regulators probe more into Greensill, financial regulators should continue to encourage and support fintech companies to make innovations that ensure capital reaches the real economy, while making sure they do not fall into regulatory cracks. Technology should remain an enabler, but the focus is to solve real operational issues.

Maybe Greensill's demise will serve as the latest cautionary tale to investors, regulators, and public that financial innovation and technology may be a black box that requires proper timely reviews on all angles. Supply chain finance is for the "supply chain", but we have to fix the "finance" first. Perhaps the global ecosystem should take a chapter from Singapore's initiatives leveraging the digital supply chain platform for trade and regulatory connectivity globally. Founding prime minister Lee Kuan Yew had once said that "Singapore's raison d'etre was its port", and that it is important we maintain the edge for our maritime centre backed by our financial hub.

  • The writer is co-chair of the Supply Chain Digitalisation Alliance-for-Action, Emerging Strong Taskforce.


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