Collateral Management Service & Stock Monitoring Solutions

Collateral Management Service & Stock Monitoring Solutions

Collateral management in warehousing involves a third-party managing and supervising goods stored in a warehouse to act as collateral for a loan. This process includes due diligence, physical custody and security of the goods, stock monitoring, and quality control to protect the interests of the financier and client. Services typically involve a tripartite agreement between the financier, the client, and the collateral manager.
Collateral management services in Kenya are offered by leading contract logistics companies like Freightways Global Solutions Ltd . These services provide an independent third party to secure and monitor a borrower's assets, which are pledged as collateral to a lender, typically through a tripartite collateral management agreement (CMA). The goal is to reduce risk for both the financier and the borrower by ensuring the physical availability, quality, and security of the pledged goods, often for inventory financing or other trade finance arrangements.

Key components of Freightways collateral management services:

  • Tripartite agreement: A legal contract is established between the financier, the client who owns the goods, and the collateral management company(Freightways).
  • Due diligence:The collateral manager(Freightways) conducts an initial assessment of the client and the warehouse to ensure standards are met and to understand the risks involved.
  • Warehouse and stock supervision: The collateral manager transfer or receives the goods, securing them in the warehouse. This includes on-site presence for constant oversight.
  • Monitoring and control: This involves continuous monitoring of the goods' quality, quantity, and security. Services can include laboratory testing, temperature monitoring, and routine stock checks.
  • Reporting: Regular updates are provided to the financier on the status of the collateral.
  • Release instructions:The collateral manager(Freightways) releases the goods only upon explicit instructions from the financier, ensuring control until the loan is repaid.

Benefits of using Freightways collateral management services:

  • Risk mitigation: Safeguards against potential risks such as theft, misappropriation, or quality degradation.
  • Enhanced liquidity:Allows businesses to access credit using their inventory as collateral, which can improve cash flow.
  • Peace of mind: Provides financiers and clients with confidence that assets are secure and managed professionally.
  • Streamlined transactions: Simplifies financing and reduces losses in commodity trading and other sectors.




Roles of Each Party

Party

  • Lender (Financier/Bank)



  • Borrower (Depositor/Commodity Owner)



  • Collateral Manager (CM) / Warehouse Operator/Freightways

Role and Responsibilities

  • The principal entity providing the loan. Their main role is to mitigate credit risk. They nominate and approve the collateral manager and the warehouse facility, hold the warehouse receipts or other title documents, and issue written instructions for the release of the collateral to the borrower or buyer.
  • The entity that owns the commodities and uses them as collateral to obtain financing. They are responsible for providing all-risks insurance on the goods and premises, paying the collateral management fees, and complying with the terms of the agreement. They can access credit using existing inventory to manage cash flow or production needs.
  • An independent third-party professional firm appointed by the lender, trusted to act in the lender's interest. Their key roles include:
  • Taking Custody/Monitoring: Depending on the agreement type (CMA or Stock Monitoring Agreement), they take full legal custody or perform regular monitoring/inspections of the pledged goods at the warehouse.
  • Verifying and Reporting: Conducting initial due diligence and ongoing verification of the quantity and quality of the stock. They provide detailed, periodic reports (daily, weekly, etc.) to the bank regarding the collateral's status, condition, and any movements.
  • Controlled Release: Releasing commodities only upon receiving explicit, written authorization from the lender.
  • Risk Mitigation: Alerting the lender to potential issues like quality deterioration, infestation, or storage problems, and taking protective actions if necessary.

Types of Agreements

The specific roles and level of control vary based on the type of agreement:

Collateral Management Agreement (CMA):


The collateral manager takes full legal custody and control of the goods stored in a dedicated facility, often providing a continuous physical presence. This offers the highest level of security for the lender.

Stock Monitoring Agreement (SMA):


The borrower retains possession of the goods (often in their own warehouse), while the collateral manager conducts periodic (e.g., daily, weekly) inspections and reporting. This offers less control for the bank but allows the borrower more operational flexibility.