by Manuel Gunzburger
Trade finance on Atlendis: Fluna case study
Atlendis enables Fluna, an alternative trade finance marketplace, to unlock new sources of financing for high-growth African businesses.
Unlocking trade finance investments with Fluna and Atlendis
Fluna, a digital credit underwriting firm focusing on African agricultural exporters, opened in March 2023 a credit line on Atlendis, a compliant, blockchain-based credit marketplace. Since then, Fluna has been able to borrow more than USDC 610,000 on Atlendis to extend financial services to their clients.
In this article, we look at one example of Fluna’s client exporting African Hibiscus flower to showcase a lending opportunity available on Atlendis to finance agricultural exporters and other small and medium businesses (SMBs) through Fluna.
“Trade finance refers to the financing of international trade. It involves a range of financial products and services that are designed to help businesses manage the risks and costs associated with importing and exporting goods and services.”
Atlendis Blog, Trade Finance Use Case Presentation
”Trade finance is self-liquidating, recession-proof and not impacted by central bank interest rate policy. The underlying assets are diversified, because you can have a grains transaction between Ukraine and Africa and an oil transaction between Brazil and China. The secured and short-term nature of trade finance transactions have historically kept default rates low.”
“International trade flows continue to outpace global GDP growth. Significant gaps remain, however, in the provision of trade finance, particularly for small and medium-sized businesses, most notably in emerging markets. The gap between the demand and supply of trade finance – or trade finance gap – currently stands at US$1.5 trillion, according to figures from the Asian Development Bank.”
International Chamber of Commerce,
Banking Regulation And The Campaign To Mitigate The Unintended Consequences For Trade Finance: A Milestone Report, 2019
Access to financing – let alone “affordable”– is a significant challenge for many growing export businesses in Africa, as this sector of finance suffers from the disinterest of traditional credit institutions and adverse effects of compliance regulation.
About trade finance, the International Chamber of Commerce reported that out of the US$16 trillion of global trade recorded in 2016, only 20% to 40% of these trade flows were enabled by large banks and financial institutions. The majority of trade was then enabled by alternative institutions or conducted on open account terms, with the exporters shipping the goods unpaid.
As a result, a lot of established and financially stable businesses are left on the bench and struggle to finance the expansion of their operations. To fill this financing gap, Fluna’s team went on to build a fully digital trade finance marketplace, connecting African exporters in need of financing to investors. Fluna's team consists of experts on emerging markets’ credit underwriting, loan servicing and private debt structuring, who understand the challenges and opportunities unique to lending to African agricultural markets. Using digital technologies to optimize underwriting efficiency and drive financial inclusion, Fluna deployed more than $20M in trade finance to 100+ exporters over the last 18 months, with zero defaults.
Fluna opened a credit line on Atlendis in March 2023 to diversify and improve their source of capital, thereby gaining access to quick, flexible and cheap liquidity. Fluna has since borrowed on Atlendis more than USDC 610,000 to scale their operations, at an average annualized interest rate of 10.7%.
To illustrate how Atlendis lenders providing liquidity to Fluna can actively contribute to the economic development of the African agricultural sector, indirectly financing high-growth businesses, supporting job creation and local value chain development, let’s look into one of Fluna’s use cases of Atlendis to finance African Hibiscus flower exporters.
Fluna’s use case of Atlendis
Overview of the use case
Fluna’s client is a leading Nigerian exporter specializing in the production and export of high-quality dry hibiscus flowers to confectionery manufacturers worldwide. With a strong reputation for timely delivery and adherence to customer specifications, the company has built a vast network of farmers and suppliers, ensuring a consistent supply of hibiscus flowers to meet the increasing demand across the global market.
Fluna’s client required working capital to finance their hibiscus flower exports to the United States in order to fulfill unmet demand from customers. Exporters in particular often face delayed cash-flows, front-loaded costs (outflows) early on during the production, packaging and exportation of the goods, while receiving payments (inflow) upon delivery, which results in the need for short term working capital financing.
Turning to traditional commercial banks is not an option for African exporters as these banks require full asset collateralization of loans and can take up to 9 months to get to a credit decision due to undefined documentation requirements and inefficient processes. The alternative is working with predatory lenders who can charge over 200% per annum interest rates.
Fluna and Atlendis’s solution
Fluna provides a platform that connects vetted businesses in need of financing with investors seeking exposure to a diversified portfolio of trade finance transactions. Fluna’s focus on this segment and the team's expertise in credit underwriting, digital businesses and loan servicing in Africa enables them to provide financing products where traditional banks do not.
In order to meet their customers’ needs and streamline their operations, Fluna’s team continuously evaluates different capital providers in order to identify scalable debt sources with terms appropriate for trade finance in Africa. Through this process, Atlendis stood out as a valuable source of funding for Fluna. Atlendis connects institutional borrowers with lenders on a secure, blockchain-based financial network. Thanks to blockchain technology, Atlendis streamlines lending by favoring disintermediation, ensuring highly secure and transparent financial transactions while reducing their cost and execution time. Fluna identified Atlendis as a cheap and flexible source of liquidity, both companies leveraging digital technologies to streamline financial transactions and drive financial inclusion.
Fluna opened a revolving line of credit on Atlendis in March 2023, getting access to a new pocket of liquidity in the form of a capital efficient, optimized credit line accessible 24/7. The credit line is then accessible to anyone in the form of a liquidity pool on Atlendis, which enabled Fluna to draw its first loan (US$71,000) to finance trade on March 20, 2023.
Fluna’s borrowing interest rate is decided by the market through Atlendis’ innovative interest rate order book, which enables lenders to set their preferred lending rates depending on their personal risk assessment, while providing flexibility for Fluna to borrow capital as needed, up to the rate that it is willing to accept. This enabled Fluna to strike a good balance between the liquidity needed to finance their client and their target cost of capital.
Combining the technology and networks of borrowers and lenders of Fluna and Atlendis, Fluna’s client successfully secured the working capital required to finance their hibiscus flower export operations to the United States.
The client was able to face the timeliness of cash flows and to allocate funds towards various aspects of their hibiscus flower supply chain, such as purchasing raw materials, covering production, packaging and transportation costs, and investing in quality control measures.
At a higher level, it allowed them to capitalize on the growing demand for dry hibiscus flowers in the confectionery industry, expand their market share and gain leverage to negotiate better pricing with buyers, enhancing profitability and competitiveness overall.
Opportunities on Atlendis
Democratizing access to alternative asset classes and providing new diversification and risk management options
Most retail investors can easily access equity on traditional markets, while access to other products of private debt such as corporate bonds is often more restrictive and reserved to wealthy individuals and financial institutions – because not all corporate bonds are publicly available, and there can be requirements on minimum investment and investor accreditations. Retail investors face the same barriers to entry with trade finance investments, keeping them away from trade finance’s high liquidity – short maturities & tradeable, good return, and predictable risk profile.
By opening a line of credit where anyone can lend funds to Fluna, Atlendis opens the gates of finance to retail lenders and gives them access to new investment opportunities. As illustrated in our hibiscus flower export case study, Fluna extends trade-finance products to African mid-market exporters and offers investors a diversified portfolio of trade finance transactions.
Transparent real world investments to DeFi investors
Especially for entities and individuals that are essentially invested in DeFi and crypto, Atlendis offers investment opportunities that could be considered in diversification strategies in that they are uncorrelated to crypto markets. Atlendis provides lenders with a range of borrowers anchored in the real-world economy, that wallets exposed to DeFi protocols and cryptocurrencies can leverage to mitigate their risk. Without leaving the DeFi ecosystem, DeFi users can use Atlendis to allocate a share of their portfolio to lending to companies like Fluna, which is backed by tangible goods from established agricultural exporters with a track record of trade activities.
Besides the transparency offered by distributed ledgers, Fluna always communicates with lenders through a dedicated channel on Discord before they borrow, to provide precise context and details about the trade finance transaction that they intend to finance with lenders’ funds.
Finally, Atlendis’ innovative interest rate order book enables lenders to choose the interest rate at which they wish to lend their funds, considering their risk appetite, the borrower’s profile and the market’s live rate pricing.
Institutions find a compliant, flexible and capital efficient source of liquidity
On the borrower’s side of the equation, Atlendis’ interest rate order book provides borrowers with the flexibility to borrow funds up to their desired interest rate, simultaneously sending a signal to the market about their maximum cost of capital.
If at first institutions like Fluna can be hesitant to onboard onto a new network, Fluna shared a positive experience from borrowing on Atlendis: their team recognized the speed, efficiency and transparency of the transactions, as well as comprehensive and informative feedback from the financial analysis conducted by Atlendis’ partner Cred, which is uncommon with traditional financial institutions.
In a 2019 report on trade finance, the ICC hinted that “Distributed ledger technology, for example, could help make transactions more secure, by giving more power to banks and regulators to trace and evaluate financing, in turn alleviating some risk.”
In a way, Atlendis and Fluna made the ICC’s wish come true. Lenders can now benefit from distributed ledger technology’s security, diversify their portfolio and access new asset classes such as trade finance investments on the Atlendis protocol. And with the support of Fluna and Atlendis, hibiscus flower exporters in Nigeria are more likely to find financing for their trades, financing that is now powered by the blockchain technology.
By connecting lenders from any background to companies like Fluna, Atlendis is democratizing access to alternative asset classes like it is opening up trade finance investments to the masses. And hopefully, after reading this, Atlendis lenders will look twice when they eat or smell dry hibiscus flowers from Nigeria.
Disclaimer: this article presents a fuller picture of Atlendis’ lending opportunities but it is not financial advice. Atlendis works with partners such as Credora and Cred to conduct deep financial analysis of borrowing institutions on the protocol, which are available under the “More Resources” section of their respective page.
Crypto lending comes with associated risks that must be taken into account and assessed carefully before entering a lending position on the protocol. It is recommended to seek professional advice from a legal and/or financial advisor. For more information, refer to Atlendis’ documentation.
Community & Growth Lead
Manuel is the Community and Growth Lead at Atlendis Labs, the organization behind the decentralized credit protocol Atlendis. Manuel studied math and finance, discovered Bitcoin in 2013, and then started closely following blockchain technology. After working for N26 Bank in Berlin, Manuel finally took the leap in 2021 to join Atlendis Labs. Manuel brings a curious and communicative mindset to help popularize the technology behind Atlendis and grow the community.