Collateral Management Agreement (Cma)

„It is much easier for a bank to prove that it can do so when it has agreed in advance with the warranty administrator, the warehouse operator and the owner of the goods that the warranty administrator can immediately access the goods on instructions from the bank and arrange the delivery of the goods to a buyer without opposition or logistical challenges.“ Says. The collateral management agreement (CMA) protects the financing of assets between a lender and a borrower in which the assets are used as collateral. Think of the warehouse manager in the country, who receives $1,000 a month for fertilizers worth literally millions of dollars. I can understand why it is not difficult to offer this guy his monthly salary to close his eyes, to open doors and to let in one or two trucks,“ says Zhann Meyer, director of agricultural raw materials at Nedbank CIB. A CMA assigns a collateral manager to maintain, store and control the warehouses until the goods are exported and the borrower has repaid their debts. „In order for the products to be eligible collateral for the RRC, the guarantee agreement must meet a number of conditions, including that it must be legally effective and enforceable in all relevant legal systems and that the bank financing the transaction must prevail over all other lenders over the products produced,“ he said. To combat this, collateral managers often employ managers from expatriate countries on their main sites: someone who has not grown up on the site and has not had the chance to establish relationships with people who would seek agreement. Staff rotations are also recommended. While structured commodity bankers operating in sub-Saharan Africa have been using collateral management agreements (CMAs) in their stores for many years, the entry into force of Basel III regulation this year increases its importance as a useful risk reduction. „Banks can normally access these „constructive“ assets if they have a collateral manager who is essentially in control of these stored assets, and that manager only responds to the financial bank,“ he says. The selection of the collateral management company with the best procedures available to combat the risk of fraud or corruption These goods, „guarantees“, can be more or less everything, but in general, metals, a wide range of soft raw materials and of course petroleum products. Collateral management companies must conduct a regular stock review, which compares physical actions with theoretical actions. The larger the stock and the number of releases or revenue per week, the more these audits must be carried out, planned or not.

„CMAs may be misunderstood,“ says JJ Gagiano, commercial director of Vallis Commodities, based in the UK, which operates in Africa and the Middle East and provides security management services for banks, businesses and funds. „The CMA is a risk agent, it does not eliminate risk and should be used in conjunction with other mechanisms available to the parties,“ he says. You are less at risk if the Collateral Manager you named: Technological advances also help improve the way collateral manager handles raw materials in warehouses. From the borrower`s point of view, a CMA allows the borrower to use his shares as collateral and to provide financing or working capital to manage their operations before receiving payment of their assets. The strengthening of regulations has highlighted the benefits of using collateral management agreements to secure commodity transactions in sub-Saharan Africa.