Ownership Based Warehouse Finance Case Study

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Ownership- based warehouse finance: The first major issue relates to the legal status of a warehouse receipt and how it can be used to create a security interest in the commodity. In many countries, a warehouse receipt by itself does not convey ownership over the commodity. For instance, a warehouse receipt in the United Kingdom is a non-negotiable instrument. There are two ways for a lender to obtain a security interest in stored commodities through warehouse receipts, either to provide the lender with a pledge on the commodity or to shift ownership (title) of the commodity to the lender. The use of warehouse receipts as a pledge instrument is the more common. In this case, the warehouse receipt conveys only a security interest in the commodity…show more content…
While warehouse receipt financing consists of a loan secured by the commodity, a repo transaction is based on sale of a commodity (commonly represented by warehouse receipts) for cash, and its repurchase at a later stage. In this case, the lender does not provide a loan but purchases commodities from a client against cash. At the same time, the lender signs a repurchase agreement specifying the date and amount at which the borrower can repurchase the commodity. The repo rate is based on the difference between the purchase and the repurchase prices and is determined by the interest rate. Ownership of the commodity puts the financial institution in a stronger position in case of default or bankruptcy, because it eliminates any requirement to justify the financial institution’s right to repossession should the beneficiaries- the ultimate buyers for trading or processing purposes- fail to meet their financial obligations at maturity. In commodity repo transactions, the financial institution has actual title, but usually not possession, of the commodities…show more content…
In India, major source of revenue from electronic warehouse receipts is by way of pledge, however,. certain warehouses are linked with national level commodity exchanges like National Multi Commodity Exchange, National Commodity and Derivatives Exchange Limited (NCDEX), Multi Commodity Exchange (MCX), Indian Commodity Exchange, etc that deal with commodities future including agricultural commodity future. For example: NSDL has agreement with NCDEX and MCX for transaction of dematerialised warehouse receipt. Dematerialised warehouse receipt gives impetus to linkage between warehouse and future trading of agriculture commodities. Further, the WDRA has granted license to Bombay Stock Exchange- promoted depository, Central Depository Services (India) and the National Stock Exchange anchored- NCDEX to set up repositories. This infrastructure shall make trading of electronic NWRs possible and with the repositories in place, WDRA- regulated warehouses shall be incharge of issuing electronic receipts, the quality of commodities and delivering
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