Written by Chinwe Ogo

Edited by Nkechi Obi

Lagos Commodities and Futures Exchange

Capital Raising is the ability for an individual to obtain money/funds from investors in order to commence business operations or as a working capital for business operations such as purchase of materials, equipment or payment of wages. In the Capital Market, capital raising is the ability for a company or an organization to obtain funds to commence business operations in the ecosystem from investors on an exchange. In the Commodities Ecosystem, access to liquidity for small scale stakeholders is difficult and thus stakeholders find it difficult to expand business operations and are forced to remain in the small-scale business. The entry of the Commodity Exchanges into the commodities ecosystem is a gleamer of hope for these stakeholders as they can raise funds through the Commodity Exchanges that have the structure to trade unique financial instruments. Commodity Exchanges provide a solution to one of the greatest problems for the stakeholders in this ecosystem which is having access to capital.

Capital Raising requires availability and sharing of data to give investors or sources of funds a point of reference for evaluation. Majority of the Stakeholders in the Commodity Ecosystem currently function informally, i.e do not keep data on their activities, do not pay taxes or keep accurate bookkeeping. This does not show a track record of credibility for investors’ confidence. Where there is no investors’ confidence there is no investment or access to funding. Commodity Exchanges give these stakeholders access to capital raising opportunities through access to financial experts who can put structure in their business and financials to show a track record and credibility coupled with the fact that they list capital raising Commodity Backed Instruments (CBIs) for investors on their Exchange.

It is the Commodities Exchange Prerogative to protect its investors, the Capital market and the entire ecosystem by providing a veritable platform for quick and efficient offtake of commodities to reduce turnaround time and ensure that stakeholders that have raised capital on the Exchanges can pay investors back within the stipulated timeline. Commodity Exchanges are expected to be supported by a functioning warehouse receipts system with transferrable receipts as the basis for physical trade and may also be used as collateral to secure cheaper credit. Gaining access to capital gives a continuous production cycle.

Financial instruments are adapted for the clientele or stakeholders of the commodity ecosystem. Commodity Exchanges have registered financial professionals who have been in the capital market for decades. These professionals advise stakeholders looking to raise funds on type of CBIs to be used, conduct a rigorous KYC on the company, prepare a financial document that highlights the amount to raise, the purpose of the fund and the duration before payback etc. These financial professionals also approach the exchange and to have the instrument listed.

Listing or getting listed on the exchange to raise capital does not affect the equity of the organization as the company would be using its Cashflow as a basis for listing of the CBI. Certain criteria are considered before a company can be listed on the Commodities Exchange such as the governance structure, risk management, shareholding structure among other things. These criteria determine how much investor’s confidence is generated by the organization.

BEING A COMMODITY INVESTOR.

Commodity Exchanges provide an opportunity for investors in the Commodities Ecosystem. This can be can be on a short-term, medium-term, or long-term basis depending on the commodity being invested in. For Example: instead of being a Maize farmer, an individual can invest in a Maize aggregation or Maize cultivation backed instrument which takes a few months to harvest time which would mean that investment is short term. The investor is sure to receive his capital and interest after the Maize has been traded or sold on the Exchange.  This investment can be done repeatedly on that same commodity by investing in multiple CBIs or Exchange Traded Notes. Individuals looking to invest on Lagos Commodities and Futures can access a list of professionals (Dealing Member Firms and Transaction Advisers) through the Exchange’s website or can contact the Exchange directly.

The major goal for the Commodities Exchanges is to introduce transparency, structure and data provision or price discovery to the commodities ecosystem to give investors an opportunity for an informed investment decision and channel to liquidity in the Commodities Ecosystem.