Risk management in trade finance by commercial banks in tanzania A case Study of Commercial Banks in Dar es salaam

The main objective of the study was to investigate risks and risk management in trade finance by commercial banks dealing with importers of materials using a case study of commercial banks. Specifically, this study aimed at identifying the types of customers engaged in trade finance and their requirements, determining the services provided by banks on trade finance to importers of materials products, and assessing the benefits and risks that Commercial Bank is facing in conducting trade finance with importers of materials products. The study used a descriptive design, with both qualitative and quantitative approach. The sample included 25 importers and seven Commercial Banks. The study find out that banks are exposed to many risks such as operation risks, credit risks, foreign currency risks, transaction risks, compliance risks, strategic risks and reputation risks. These risks were managed through the use of terms and conditions that protect the banks from the above mentioned risks, Frequent review of and the use of internal and external audit functions, managing market dynamics, planning and monitoring well transactions, and through development of strategic plans and use of strong marketing mechanisms. In conclusion, despite the fact that the trade finance has been privatized moving from the hands of the governments into the hands of private companies and banks, the puzzle that with the withdraw of the government, the trade finance will incur a lot of risks due to involvement of private companies was solved, since it was observed that private companies have established mechanisms to deal with the risks of trade finance and these mechanisms are working quite well. Therefore, this study recommended that the importers should be able to access trade finance products by approaching commercial banks and not by using a third part.