TRADE FINANCE TALKS
5.1
Negotiable instruments are going through a makeover – the who, what, where, why
MOHAMED ELNAGGAR Trade Professional TFG’s International Trade Professionals Programme Trade Finance Manager, Corporate Operations National Bank of Egypt
Blockchain technology has been described as a game-changer in trade finance for its capacity to digitize the most complicated sector. But legal challenges hamper the transformation process, as current outdated laws in most countries and jurisdictions do not recognize the digital version of the negotiable instruments. WHAT IS A NEGOTIABLE INSTRUMENT? A document containing a payment order or undertaking is a negotiable instrument, given that: It is capable of being transferred from one holder to another by delivery (or endorsement and delivery) so that the holder of the instrument may sue on it in his name. If the instrument is payable to a bearer, it may be transferred by delivery to the transferee. If the instrument is payable to a specified payee or his order, it must be endorsed (that is, signed on the back by the transferor) and delivered to the transferee. It gives the bona fide purchaser
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for value legal title to the instrument free from any equities or defects of title of the transferor and any other prior holder of the instrument, as long as the purchaser had no notice of any such equity or defect in the title before the transfer being made. There are three types of negotiable instruments: bills of exchange, promissory notes, and checks. Bill of exchange & promissory notes are the most widely used in trade transactions.
WHY DO WE NEED NEGOTIABLE INSTRUMENTS IN TRADE & SUPPLY-CHAIN FINANCE? To enter new markets and compete with other suppliers, exporters take the risk of selling and shipping goods on an openaccount basis against buyers’ accepted bills of exchange or other negotiable instruments. Selling goods on an open account basis imposes a burden on the working capital of the exporter and leads its liquidity to a shortage. Exporters, therefore, use these receivables to secure immediate funding from their financing providers using Receivable Finance techniques. The same applied to importers wanting to extend their payable tenors to establish a good relationship with their suppliers at
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