Alteia Monthly Insight: Understanding the systems behind trade finance in Africa

‍ Does trade finance in Africa need a new mindset?

That question came up at GTR Africa - Trade and export finance conference in Cape Town, where Ian Henderson, Chief Investment Officer at Alteia, participated in panel discussions on how capital is being deployed across the continent.

For many investors, the answer appears to be yes. Political risk, currency volatility, and regulatory complexity dominate the headlines, and capital allocators often treat geography as a proxy for risk.

But that view misses something important: Africa's $80 billion trade finance gap exists not because capital refuses to go there, but because capital does not yet understand what it's looking at.

As Kevin Ramsamy FCCA, Chief Executive Officer of Alteia, notes, "Trade finance in Africa requires a disciplined approach to capital deployment." That discipline comes from understanding how trade finance actually operates, not from adopting a fundamentally different investment approach.

The gap reflects not a shortage of capital, but a gap in understanding of how trade flows actually move across the continent and what is required to support them effectively.

Trade finance does not operate deal by deal. It operates through systems: the interaction of trade flows, counterparties, legal structures, and operational processes that together move goods and capital across markets. These systems are built around short-term, self-liquidating transactions, where repayment is linked directly to the movement of goods and underlying trade flows.

The sections that follow break down how these systems operate: from portfolio construction and legal frameworks to operational oversight and market structure. Each draws on direct experience from the teams managing these processes.

Portfolio construction: following the flows

At portfolio level, trade finance is not approached as a collection of isolated transactions, but as a system of repeatable trade flows and counterparty relationships. ‍

At Alteia, portfolio construction and capital allocation is led by the Chief Investment Officer. Kishan Thakor and Eran Singh, portfolio managers, are responsible for origination within the portfolio investment parameters and investor mandates, focusing on how trade flows behave across markets.

Portfolios are built around patterns: how goods move, where they originate, where they are delivered, and how counterparties operate within those flows. Balance across the portfolio is actively managed. When exposure to one sector increases, such as oil and gas, allocation is adjusted towards other segments such as agriculture, allowing volatility in one area to be absorbed without disrupting capital deployment across the whole.

Consider what this means in practice: when recent geopolitical tensions created volatility in oil and gas markets, many capital providers reduced or delayed deployment. Alteia's portfolio continued deploying capital because it was built around understanding how goods actually move. Agricultural and processed goods segments continued to perform, absorbing volatility elsewhere. This is the difference between reacting to perception and managing through structure.

A trader sourcing raw cashew nuts across Ghana, Togo, and Côte d'Ivoire may supply buyers in India, Vietnam, or Germany, adjusting volumes depending on regulatory, pricing, or processing conditions. Sourcing may shift towards Togo, where local processing requirements are less restrictive, while sales may increase into India, where demand for local processing remains strong.

Over time, familiarity with these patterns allows financing decisions to extend beyond individual transactions and reflect the broader activity those transactions support. In some cases, this can extend to adjacent developments, such as supporting a processing facility linked to an existing trade flow.

Alteia's funding mandate is focused on its core operating regions, which form the foundation of each transaction. Once this base is established, the same client relationships can support trade flows beyond these regions, allowing diversification to expand in a controlled way.

To date, the majority of clients remain within these core regions, with diversification developing through expansion into new commodities, suppliers, and destination markets.

Diversification is managed through defined internal limits across geography, industry, and borrower exposure. Where required, tools such as co-lending and master risk participation agreements are used to maintain balance across the portfolio whilst meeting borrower needs.

Legal structure: making it work across borders

For trade to function across jurisdictions, legal structure is foundational.

The legal framework at Alteia is overseen by Donovan Lindhorst, Head of Risk and Legal Support, working closely with Angela Paschalides and Abby Grabe.

Transactions are supported by layered protections, including pledges and charges over goods, guarantees from parent companies and shareholders, and assignments over receivables and contractual rights. This includes maintaining control over collateral and, where possible, over the flow of funds, ensuring that repayment mechanisms are aligned with the underlying trade.

Documentation defines the full framework of each transaction, from the conditions that must be met before capital is deployed, to what constitutes a breach or event of default, to Alteia's rights to redirect cash flows and enforce security. This clarity ensures that obligations are understood, monitored, and enforceable across jurisdictions.

Deals are structured to fund at points in the trade cycle where risk is lowest. Where risk is assumed, security structures and monitoring processes are used to mitigate exposure. Cash flow control is maintained by ensuring that off-taker payments from assigned sale contracts are made directly into bank accounts under Alteia's control. ‍

Most conventional facility agreements are governed by English law, where commercial courts provide reliable and predictable outcomes. Where Sharia-compliant finance is required, arrangements are structured under English law or the relevant GCC local law.

Local law alignment is supported through a network of trusted counsel in each jurisdiction, who provide legal opinions confirming that security is valid, properly registered, and enforceable in practice.

Legal risks remain, including incomplete due diligence, complex borrower structures, double financing where the same invoices are presented to multiple financiers, and challenges in enforcement. On-the-ground experience in funded jurisdictions is crucial to ensure that lender rights can be enforced in practice, not merely on paper.

Many lenders discover these risks only when enforcing. A security interest that looked comprehensive in one jurisdiction turns out to be unregistered in another. A guarantee from a parent company becomes worthless when the corporate structure was misunderstood. Alteia's approach is to assume enforceability must be proven upfront, not hoped for later.

Strong documentation ensures there are no grey areas, and agreements are drafted to enable Alteia to act quickly and decisively to protect investor capital.

Within this approach, these risks are addressed through structure rather than assumption. This discipline is what allows trade finance to function across multiple jurisdictions.

Operational execution: maintaining visibility

Once capital is deployed, oversight continues through active monitoring and verification.

Operational oversight at Alteia is led by Vince Freemantle CA(SA) CSb(SA), Chief Operating Officer.

Monitoring combines internal systems with external verification. A network of third-party independent collateral managers operates at sites where commodities are stored, collated, and put into production, while logistics tracking through third-party product subscriptions provides visibility over goods in transit, including the ability to track shipments at sea.

This is supported by an active middle office function, which conducts regular unannounced site visits to verify that goods and facilities exist as expected, and to perform on-site due diligence reviews, including areas such as bookkeeping with borrower staff and management.

All transactions are recorded within an internal loan management system (LMS), capturing capital flows, documentation, due dates, and performance against expectations. This ensures that all required documentation is obtained before capital is deployed and that borrower performance is measured and reported accurately and timeously across the fund management business.

Maintaining visibility requires both physical presence and structured data.

Alteia also maintains an active borrower-funder relationship, supported by collateral managers and logistics providers who track commodity movement and location throughout the transaction lifecycle. The middle office takes a third-eye approach, observing all transactions to ensure that borrowers adhere to tenor periods and that commodities remain where expected throughout the funding process, drawing on a wide network of information and service providers.

Operational challenges remain, particularly in markets where documentation standards and digitalisation are still evolving. Many traders operate on established relationships and tacit agreements with their service providers, while the financing model relies on formal documentation and verifiable proof of ownership.

The greatest operational risk is not what most investors assume. It is not theft or fraud. It is documentation drift, where a trader gradually shifts from formal contracts to verbal agreements because the relationship feels solid. This is why unannounced site visits matter more than scheduled audits.

Managing this requires careful navigation to avoid breaking trust while maintaining fiduciary duty towards investors and the capital they have entrusted to Alteia.

Market structure: banks, funds, and collaboration

The trade finance landscape in Africa continues to evolve through the interaction of banks, funds, and local capital providers.

Ian Henderson reflects on how the capital landscape is changing.

Development finance institutions and multilateral agencies have expanded lending capacity across African banks. According to industry data, DFI participation in African trade finance has grown significantly in recent years. However, regulatory constraints and structural limitations continue to shape how capital is deployed.

Local banks face additional constraints, including single name exposure limits and currency considerations, particularly in cross-border transactions.

Within this environment, non-bank funds play a complementary role, providing access to underserved segments, particularly SMEs, while bringing structuring and monitoring capabilities required to manage these transactions.

Collaboration between banks and funds is increasing, with co-funding and participation structures supporting the expansion of trade finance activity.

This brings us back to the question posed at GTR Africa: does trade finance in Africa require a new mindset?

As Ian notes, "A different mindset is not required, but rather education and clear presentation of the risks to investors and how these are mitigated and managed from deal inception to implementation through to monitoring and repayment. A disciplined, consistent and transparent approach is vital so that investors have clear visibility and communication."

About Alteia

Alteia is a specialist investment manager focused on short-term, self-liquidating trade finance across Africa and the GCC. The group deploys secured and Shariah-compliant credit solutions through fund entities managed by Alteia Fund Management Limited, a Mauritius-licensed and regulated investment management company, and through Alteia Capital, a Saudi CMA-licensed investment firm, under a disciplined governance framework.

Monthly Insight

This article forms part of Alteia’s Monthly Insight series, which explores structured trade finance, capital discipline and evolving market dynamics across Africa and the GCC.

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