The trade finance industry has been rocked by a series of insolvencies in recent months, sending shockwaves through the sector. The sudden collapse of Stenn, once a promising London-based non-bank trade finance provider, and the closure of Kimura’s trade finance wing have prompted urgent questions about the inherent risks of the market. These events, following the high-profile 2021 bankruptcy of Greensill, reveal unsettling patterns in the trade finance space—fraud, lack of oversight, and a dangerously complex web of financial risks that threaten the stability of this crucial sector.
The Rise and Fall of Stenn
Stenn’s meteoric rise as a trade finance provider is a story of rapid growth fueled by technological innovation. Launched in 2015, it secured an impressive £700 million valuation and provided over £16 billion in financing to businesses globally. Its focus on invoice financing, particularly for small and medium-sized enterprises (SMEs) in underserved markets, attracted major investors such as Citigroup, Barclays, and Crayhill Capital Partners.
However, the company’s unexpected collapse in December 2024 exposed serious cracks in its operations. Stenn’s downfall was triggered by HSBC’s investigation into the company following allegations of its involvement in a Russian money-laundering scheme. What seemed like an isolated fraud case soon unravelled into a global story spanning multiple continents, with several of Stenn’s key clients in Japan and Taiwan denying any relationship with the company. This raised suspicions that large portions of Stenn’s revenue were based on fabricated invoices and fake suppliers.
The alarming speed with which Stenn’s operations crumbled suggests a significant failure in oversight. Despite numerous red flags, including the resignation of Stenn’s auditing firm, EY, in 2018 due to concerns over the company’s transactions, the fraud went undetected until it was too late. The failure to recognize these warning signs underscores the vulnerabilities of non-bank lenders in a high-risk, low-margin industry like trade finance.
Kimura: Strategic Exit or Financial Trouble?
Only days after Stenn’s collapse, another trade finance player, Kimura, also announced the closure of its trade finance operations. Unlike Stenn, Kimura’s exit was framed as a strategic decision to refocus on its commodity logistics and sports management sectors. The company filed for creditors’ voluntary liquidation in December 2024, after returning funds to investors and selling off its exposures.
Though Kimura’s decision to wind down its trade finance business was not primarily due to insolvency, its closure highlights the pressures faced by smaller non-bank lenders in the trade finance market. The complex nature of trade finance—fraught with risks such as fraud, cash flow issues, and fragile business structures—makes it challenging for smaller firms to sustain profitable operations without the robust infrastructure typically found in larger, traditional financial institutions.
Greensill: The Precursor to a Bigger Crisis
The collapse of Greensill in 2021, one of the UK’s largest supply chain finance providers, serves as a stark reminder of the fragility of the trade finance market. Valued at over £5 billion just a year before its insolvency, Greensill went down amid allegations of aggressive lending practices, fraudulent schemes, and a loss of its credit insurance cover. Like Stenn and Kimura, Greensill’s downfall was rooted in risky financial practices and a lack of proper oversight.
These three cases—Stenn, Kimura, and Greensill—demonstrate different facets of the same problem: the vulnerability of the trade finance sector to fraud and mismanagement. While the business models of these companies may have differed, they all faced significant financial risks and ultimately crumbled under the weight of poor oversight and inadequate internal controls.
The Dark Side of Trade Finance: Fraud and Oversight Challenges
Trade finance, by its very nature, is prone to fraud, money laundering, and other illicit activities. The global movement of goods and money across borders, combined with the reliance on paper documents that are easily falsified, makes the industry a prime target for criminal activity. This vulnerability is exacerbated by the complex and decentralized nature of trade finance, where multiple parties—including investors, insurers, and regulators—share responsibility for oversight.
As André Casterman, Chair of the International Trade and Forfaiting Association’s Fintech Committee, notes, “Trade finance remains a very risky market for new entrants.” Smaller players like Kimura often go unnoticed until it’s too late. But when larger firms like Stenn fail, it underscores the importance of effective risk management and oversight in the industry.
One of the key problems in the sector is the lack of comprehensive due diligence and oversight. Unlike traditional banks, which are subject to stringent regulatory controls, non-bank lenders often operate in a more relaxed environment, making it easier for fraudulent activities to go undetected. This lack of oversight was a critical factor in the collapse of Stenn, where key clients and transactions were later revealed to be bogus.
The Role of Investors and Insurers
Investors play a crucial role in detecting fraud and ensuring the financial health of trade finance providers. As the primary source of funding for non-bank lenders, investors are often the first to identify red flags and hold companies accountable. However, many investors focus on the financial performance of the fund rather than the underlying transactions, leaving gaps in due diligence that can allow fraud to flourish.
Transparency is key in minimizing the risk of fraud. Investors must demand greater visibility into the operations of trade finance firms, especially those handling large volumes of transactions. As Nils Behling, Co-Founder and Chief Legal Officer at Tradeteq, explains, “It’s virtually impossible to put safeguards into place that will prevent any and all fraud.” However, increased transparency and stricter due diligence can help mitigate risks and protect investors from financial losses.
Trade credit insurance also plays a vital role in preventing fraud in the trade finance sector. By underwriting the underlying trades managed by non-bank lenders, insurers can identify potential risks and provide an early warning system for investors. If insurers are unwilling to cover a particular transaction or lender, it can signal to investors that something is amiss.
Strengthening the Trade Finance Industry
The recent collapses of Stenn and Kimura, while not representative of the entire trade finance industry, highlight critical weaknesses that must be addressed to ensure the sector’s long-term sustainability. As the industry continues to evolve, non-bank lenders must invest in stronger financial and compliance oversight to avoid falling victim to fraud and mismanagement.
Technological advancements, such as the use of electronic bills of lading (eBLs) and artificial intelligence tools, hold promise for improving transparency and reducing document-based fraud. But technology alone is not enough. The industry must also focus on fostering a culture of transparency and accountability, with greater collaboration between investors, insurers, and regulators to safeguard the integrity of the trade finance market.
In the end, while the collapse of firms like Stenn and Kimura may seem like isolated incidents, they serve as a wake-up call for the trade finance industry. To survive and thrive in the face of mounting risks, the industry must address its core vulnerabilities and work together to create a more secure, transparent, and resilient market.
Indrajit Roy Choudhury 