By Vishal Bhidu
Trade financing remains a critical aspect of doing business across the globe where its demand has been fuelled on the back of a fast recovery in the post-COVID context coupled with heightened economic risks rendering access to funding more complex. Thus, this business environment has led to the global trade finance gap widening from USD 1.7 trillion in 2020, according to the Asian Development Bank (ADB) report, to hit USD 2.5 trillion in 2022.
On Day one of the Africa Partnership Conference (APC) held at the Intercontinental Hotel at Balaclava on October 4, a panel discussed the much-coveted theme: “Trade Financing as a Driver of Development in Africa” chaired by Executive Director of Eastern Africa Association Agnes Gitau.
The panel composed of Tahirou Sanogo, Dr. Wu Qijin, Thabamg Chiloane, Vikram Lodha and Dr. Graham Bright offered insights on the various aspects of finance spanning across SMEs, Fintech, trade finance and digitisation on ways and means to help unlock financing for the continent, as a whole.
How to make compliance work in 54 Countries, 40 currencies, and distinct payment information?
On the onset, Dr Graham Bright who serves as the Head of Compliance and Operations at the Euro Exim Bank Ltd explains that the institution works exclusively with the SME market where the focus is on smaller SMEs to help find a solution pertaining to finance.
He emphasised: “There are 54 countries in Africa bound in a contract, a wonderful agreement with 40 currencies, different cultures and difficult movement of goods and services. Here, it percolates to individual preferences made by those some countries where some are landlocked and here lies the issue with cash flows locked in.”
“One of the main issues is compliance taking into account that every single country on the continent is distinct with a dearth of standardisation, due diligence, Know Your Customer (KYC), AML, and instead of having 5 different payment information, trade finance got 32 such pieces of information, of which only 10 are standard. So let’s talk about the solutions at hand, that we have.”
The expert enumerates that the Euro Exim Bank Ltd offers letter of credit and facilitation for trade among tier-to-tier corporates to foster trade with any other country: Looking at the appropriate soft collaterals and not cash flow, working capital challenges or the ability to trade with paying later aiming to ensure that payment is guaranteed in future. “Here we are not looking at billion in terms of dollars and rather smaller trade among tier 2 and tier 3 targeting USD 100,000,” he remarked.
On the other hand, the Co-Founder & CEO of Nimai Trade Fintech – 360tf Vikram Lodha enumerated the role of FinTech to help support access trade while hinting at the prospective potential offered on the continent, in particular Kenya.
“The presence of M-PESA in Kenya is phenomenal and led us to come up with a mobile app and within a month of its inception, we have seen 1,000 plus downloads taking place that helped ensure that we reach out to banking customers and potential partners, gaining a further reach between the buyer and seller.”
Lodha whose FinTech business is headquartered across jurisdictions such as Kenya, Singapore, UAE and India says that since his digital platform has gone live, a volume of offer worth USD 8 billion spanning from 84 countries, customers hailing from 25 different countries where the larger pie came from Africa.
“Our aim is to foster trade finance on the continent to ring in extensive visibility of trade unfurling from the region to the entire world to harness awareness where the trading platform is completely digital,” he added.
Partnership between Banks and DFIs for Funding
Head of Trade and Working Capital at Absa Group, Bohani Hlungwane advocated a partnership between banks and Development financial institutions (DFIs), encompassing diverse organisations where commercial banks will not issue funding alone. He added that KYC remains another area that warrants bank statements from the loan seeker. “This is where a partnership with DFIs helps to iron such issues by going beyond to build capacity building to help spark benefits across the SME space.”
He was speaking on the need to simplify solutions for SMEs by monetising the supply chain. The moot question, Hlungwane argues, is what are you doing to digitise business where banks like ABSA have access to data, hence, can make decisions on funding without asking for financial statements can be a thorny issue.
What could be the ways to help overcome the various challenges and plug in the trade finance gap on the continent? Head of Financial Inclusion and Public Policy at the Banking Association of South Africa Thabang Chiloane explains that his organisation represents banks whose aim is to conduct an interface with the Government to find a solution to the underlying issue.
There is lots of money flowing across the financial sector in Africa where a huge chunk is not accounted for in banks that often change hands to those lacking access to finance. He advocates: “Let us find ways to include everyone in the formal banking sector or else we will be at our own peril. Financial inclusion is key.”
Chief Representative of the Export-Import Bank of China’s Eastern and Southern Africa Representative Office Dr. Wu Qijin enumerated that while trade finance represents a small chunk of its business and since the China-Africa Forum took place, USD 5 billion was earmarked under trade finance imported goods from Africa. In 2021, an additional USD 10 billion was disbursed to support trade finance.
“Financial regulations in China have enabled us to support SMEs under financial institutions and we emulated the same across the EXIM in Africa where we are the largest shareholder. Recently, we signed a loan agreement with the AFC worth USD 300 million in Egypt to support SMEs, particularly on a slew of projects deemed as critical to industrialization while we offer support to many such African nations be it on the infrastructure part and helping African nations to help upgrade livelihood,” he told.
In a reply to a question, the CEO of Foods’ Co & President of the Association of Cashew Nuts Manufacturer in Ivory Coast Tahirou Sanogo explains that the lack of finance has often proved to be an impediment where a solution is the need of the hour with some 20 percent smaller SMEs and traders encompassing farmers who are weak financially were compelled to close their businesses until the Government tried to intervene.
