Why Banks Appoint an Independent Collateral Manager
A loan secured on goods is only as safe as the control over those goods. When the borrower holds the stock, the bank depends on the borrower’s word. An independent collateral manager takes that control and reports to the bank.
VSM stands between lender and borrower. We hold the pledged goods, check them on a set schedule and release them only on the bank’s written order.
- The bank lends against goods it can verify
- Stock counts and valuations come from a party with no stake in the loan
- Goods cannot move without the bank’s instruction
- Storage insurance names the bank as loss payee
Two Ways to Hold Security
Possession under a collateral management agreement
VSM holds the goods to the bank’s order at the client’s premises or a partner warehouse, and issues a stock certificate in the bank’s name. The client keeps title but cannot move the stock. This route suits imported goods and commodity held for a contracted buyer.
Pledge on an electronic warehouse receipt
The commodity sits in an accredited warehouse on the USE Commodities Exchange. The bank pledges the receipt through the depository, which blocks any sale or transfer until the bank releases it. VSM approves each receipt before it exists.
What VSM Controls and What the Bank Keeps
VSM controls
- Custody of the pledged goods at the agreed site
- Access to the store and every movement in or out
- Stock counts, quality checks and valuation updates
- The stock certificate issued in the bank’s name
- Release of goods against the bank’s order
The bank keeps
- The credit decision and the loan terms
- The pledge over the goods under the Collateral Management Agreement
- Receipt of repayments and their application to the loan
- The right to issue or withhold the release order
- A flagged account, with every receipt applied to the loan
- The right to call for more cover and to audit the site at any time
Monitoring, Reporting and Release
Monitoring
VSM opens stock cards and applies dual control when custody starts. Inspectors count the stock and check its condition on the schedule set in the agreement, with unannounced counts between visits. Fumigation is arranged where the goods need it.
Reporting
The bank receives a stock certificate in its name when custody starts and a position report every month, verified by a party other than the borrower. Valuations follow Uganda Commodity Exchange and international prices.
Cover and release
If cover falls below the agreed trigger, the bank calls for more stock or a part repayment. Goods leave VSM’s control only on the bank’s written release order, in full or in tranches, and VSM sends an updated position after each release.
If the Borrower Defaults
- The bank records the default and issues a dated notice. The cure period runs from that date.
- If the default is not cured, VSM freezes the stock. Nothing leaves the store without the bank’s written instruction.
- VSM counts the stock, checks its condition and values it at the current market price.
- On the bank’s written instruction, the stock is offered at or above the reserve price set at valuation. Goods on the exchange are offered through a broker.
- The buyer pays into the account the bank names. VSM releases the goods only after the funds are confirmed.
- The bank applies the proceeds in the order shown and issues the discharge.
Order of Proceeds
| Priority | Applied to | Covers |
|---|---|---|
| 1 | Realisation costs | Transport, clearing, handling, and agent or broker fees on disposal |
| 2 | Storage and management | Warehouse rent, fumigation, testing and collateral management fees |
| 3 | Bank principal and interest | Outstanding facility, accrued interest and enforcement costs |
| 4 | Surplus to the client | Any balance left after the bank is paid in full |
If the sale raises less than the costs and the loan, the bank recovers the balance from the client under the facility agreement. Cover of three to five times the loan value makes this remote.
Insurance on Every Mandate
Professional indemnity
Held through memoranda of understanding with established insurers, including Mayfair and Old Mutual, and covering all transactions under our control.
Transaction-specific cover
Each policy is tailored after an assessment of the transaction, so cover matches the actual exposure.
All-risk cover
Stored goods are insured against fire, burglary, flood and other perils, with the lending bank named as loss payee.
Two Steps to Working with VSM
Step one: training at no cost
We train your staff on trade finance and collateral management at no cost to the bank. Your lending teams learn to structure secured transactions before any mandate begins, with no obligation. Topics include commodity quality assessment, collateral management practice and market price analysis.
Step two: appointment
After the training, the bank may appoint VSM as collateral manager under a formal Collateral Management Agreement. We then manage pledged goods under the bank’s instruction.