Download presentation
Published byMilton Garrett Modified over 10 years ago
1
K.W. Mwangi - Assistant GM, Trade Finance Commercial Bank of Africa Limited (CBA)
A trained trade finance practitioner with over 15 years experience in commercial and financial aspects of international trade. His mandate at CBA is to grow the trade finance customer base and expand the product range.
2
Previously worked in the same capacity and mandate for 7 years at the Kenya Commercial Bank Limited (KCB). Was instrumental in trade finance centralization and computerization and tremendous growth in trade finance business volumes and incomes. Involved in developing and rolling out new trade related structured finance products. Also worked with PTA Bank on various capacities for 12 years. PTA Bank is the financial wing of the Common Market for Eastern and Southern Africa (COMESA), comprising of approximately 21 African countries. He was the PTA Bank’s Director of Trade Finance for 6 years where he was responsible for product development, business growth and diversification. During the course of his banking career, Mr. Mwangi has attended several local and international trade and commodity finance seminars and workshops both as a participant as well as a speaker. He holds a BA (Honours), MA (Economics) from the University of Nairobi and a Diploma in Regional Industrial Development from the University of Delft, Netherlands.
3
3RD AFRACA AGRIBANKS FORUM ON AFRICA VALUE CHAIN FINANCING
“VALUE CHAIN FINANCING MODELS AND VISION FOR VALUE CHAIN FINANCING IN AFRICA” KW Mwangi 16TH October 2007
4
Diversification & Value addition
Value addition still remains a strange concept to many African producers, processors, exporters and even financiers Concept simply means improving the quality of your produce before selling it Primary products still account for 80-90% of total EA merchandise exports Lack of legal, legislative, strategy and even coordination is evident
5
Why Value Addition Is Necessary
Preservation; Extend life of Product Add Value to the Product (Value Addition) Protect the Product from the environment (harsh) Season crops going to waste due to lack of processing know-how Tea, Coffee etc (non-food) fetch more if Value Added This can be said for other farm products Minimization of price fluctuations, climatic conditions and unfair trading practices General Economic Development; Employment, skills development, growth & development and economic competitiveness
6
Why along the Supply Chain
Transaction risk could be better than corporate risk if proper controls are in place It also addresses the changing client environment where network alliances are being formed along the supply chain Scope foe entering into borrowing base financing ; Supply chain is for the long term and offers a REAL WIN-WIN situations STCF is in the supply chain but not along the Supply chain
7
Why along the Supply Chain
Technical Value Additions Commodity processing (Vertical) e.g leather products, preserved fruits, and fish products Share of Manufactured merchadise (Horizontal); apparels, accessories … Trade Support Services; general business services, infrastructure (roads, air transport, railways, ports, telecoms, energy), Marketing agencies New: ICT support Services, call centers, information processing centers Financial support to the entire Export Cluster
8
Challenges facing Supply chain solutions
Ability to genuinely capture the whole chain may fall only to a few Those with scope and presence of a Mega-bank and not all will gear up Administrative bottlenecks, transparency issues… How formal /informal the supply chain is? Whether it is an integrated network with all the parties buying in to a collective approach or a miscellany of loosely connected providers that happen to form a common chain Absence of establish networks Synergies; capability pool e.g. trade finance, STCF, export finance, forfaiting, et al, all to deliver along the supply chain
9
OPPORTUNITIES FOR SUPPLY CHAIN FINANCING
It’s no doubt that traditional business offers limited growth and supply chain approach is the best way forward Need to ensure that the bank’s own chain is harnessed to deliver on client’s needs (WIN-WIN) The bank has to be integrated within itself in order to take an integrated supply chain approach The following are, just a few models to consider;
10
FINANCIAL / ADVISORY SERVICES ALONG PRODUCT SUPPLY CHAIN
C L I E N T Contract Negotiation Contract Signing Production Delivery Settlement Warranty Term. P R O D U C T S LC advice Confirmation FX cash LC discounting Forfaiting Innovative, VA TRSF Products Bid Bond Export Financing Pre payments Commodity hedge FX options FX forward Advance payment guarantee LC settlement Deferred payment Collection Structured Export Financing Trade payment FX cash Post Import Limited/ without Recourse Return of bonds and Guarantees & other security Instruments (if any) A D V I C E R I S K S Operational& Documentary Credits (UCP 500/600) Commodity quantity, quality and price Foreign Exchange/ INCOTERMS Interest Rate Counterparty Country & Transactional risks Settlement
12
BUSINESS MODEL FOR VALUE CHAIN COMMODITY FINANCE
Dynamics that exist within a value chain, Small producers and Enterprises linking Into healthy markets opportunities to Reduce costs, improve their product Or expand their market. THEY ALL UNDERSTAND THE RISKS AND MARKET REALITIES Global Distributors/ Retailers / VALUE ADDITION National Retailers Sector-specific providers Exporters Wholesalers Cross-cutting providers Processors/Traders Quick overview of a value chain. Producers Financial (cross cutting) Input Suppliers
13
(Red/ Green Clause LCs)
MULTIPLE FINANCING ALONG THE VALUE CHAINS VIA FINANCIAL INSTITUTIONS BANKS (Red/ Green Clause LCs) Global Distributors/ Retailers / VALUE ADDITION BANKS Pre-Export, pre-payments, Export LCs, Receivable Finance…) National Retailers Exporters Wholesalers BANKS Non-Bank Financial Inst. (Stock/ Export Finance, Other Corporate Finance) Processors/Traders BANKS, Non-Bank Financial Inst. MicroFinance, PRODUCERS Producers Input Suppliers
14
COMPETITIVE ADVANTAGE
The ability to exploit some combination of: Efficiency New Markets Product Differentiation through upgrading – changes made by firms in product development or improvements in production techniques or processes
15
Kenya’s Development Agenda, Vision 2030
JOH-KYA JvW-P1 Kenya’s Development Agenda, Vision 2030 Context Create an effective and trusted legal system Continue improving security and safety Streamline the taxation system Eliminate corruption National Business Environment Improve telecom infrastructure Upgrade logistical links internally and with neighboring countries through better infrastructure Improve electricity supply Enhance public education Improve business regulatory processes Reduce trade and investment barriers Maintain focus on opening competition Cluster Development Initiate a formal cluster development program that covers all established and emerging clusters Organize business support programs and government agencies around clusters Company Capabilities Continue enhancing quality certification Assist companies in upgrading production methods Geographic Levels Play a leadership role in economic integration with neighbors Push responsibility for economic development to provinces Economic Development Process Continue engaging the private sector in development
16
FINANCIAL MODELING BASED ON VALUE CHAIN
IDENTIFY key value chain actors and service providers (farmers, processors, buyers, input and equipment suppliers, banks, finance companies) Map product and service/finance flows (production process, VC finance, commercial bank lending, lease financing) Identify enabling environment issues (macroeconomic policy, legal and regulatory framework, donor and government interventions) Analyze business dynamics and opportunities and constraints for firm upgrading, including supply/demand for finance Identify and prioritize potential solutions and make recommendations
17
VISION FOR VALUE CHAIN FINANCING IF IT’S TO REMAIN RELEVANT
Enhance sectoral productivity, capacity utilization and investment opportunities for increased industrial growth & trade opportunities Vision CREDIT & FINANCIAL INTERMEDIATIONS GOVERNMENT’S ENABLING ENVIRONMENT PRIVATE SECTOR PARICIPATION Strategy Plans and implementation BUILDING BLOCKS ON ACCELERATING SUPPLY CHAIN FINANCING Source: NESC Vision workshop, January 13– ; Naivasha, Kenya 17
18
CREDIT & FINANCIAL INTERMEDIATIONS
Facilitation of trading in goods and services between parties internationally and locally through RISK MINIMIZATION; Financing against trade DOCUMENTS or goods (on and off-Balance Sheet Lending). Risk Assessment Macro Risks (Country and bank’s risks) Transaction Risks (Customer, the goods, counter-party etc) The Importance of the bank’s Role Advising the Creditworthiness of buyers/ suppliers Providing information on various financing tools Arranging financial instruments and transferring funds Providing guidance in the preparation of Doc Arranging Foreign Exchange transactions Customer Advisor Services though the Supply Chain Finance
19
PRIVATE SECTOR PARICIPATION
Informal Sector, Retail Trade Distribution & Whole sale business E-Commerce Trade In Services Value Addition thru’ Manufacturing, Processing and Diversification Public Private Sector Partnerships Business Process Outsourcing
20
GOVERNMENT’S ENABLING ENVIRONMENT
Legal, Legislative and Institutional Framework Fiscal and Monetary Stability Policies and Strategies to support the growth of the following sub-sectors Enhance sectoral productivity, capacity utilization and investment opportunities for increased industrial growth Quality Standards and Environmental Mobilization Research & Development, Infrastructure Development
21
CONCLUSION Basic Concerns in Value Chain Financing should boarder on the following key elements What commodity / goods? How is it sold? Where is it sold? When is it sold? Who is the Borrower? Who is buying it? Once the above questions are answered, it is possible to look at possible financing structures. However, in a liberalized and globalized environment we are operation in, financing along the supply chain will squarely border on the financiers capacity and capability to manage inherent risks associated with the business both vertically and horizontally
22
INHERENT RISKS IN VALUE CHAIN FINANCING
Some of these risks include, inter alia; Credit risks: Past Performance records / KYC issues Production Risks: Will the customer produce the goods that will enable repayment; Diversion Risks: Will the customer deliver the goods to the selected buyers? Country / Political Risks : Could country problems or government intervention lead to non-payment? Price Risks: Will the value of the goods delivered be enough to reimburse the facility? Payment Risks: Terms & conditions; and Currency Risks: Foreign/ Local Currency convertibility.
23
OTHER ASSOCIATED RISKS
Non Compliance/Client Integrity (Lack of sincerity in the transaction; moral and financial standing. Customer Performance Risks: quality assurances, delivery time, quantity, logistics, insurance, legal; Transactional Risks: physical movement of goods and documents Buyers Risks : failure to honour contract Sales Contact/ Payment Risks Warehouse Merchandise Risks on value, quality..
24
Exposure by not adding value
International price shocks / Poor returns Reality: Most LDCs have the KEY out of their problems; resources and a lot of resources Learning from Asian Tigers: Value addition Value addition has the KEY TO UNLOCKING the true potential of our exports, penetrating new and emerging markets Question: Do we see this KEY that is right in our hands?
25
KEY MESSAGES The Value Chain Framework is useful for expanding rural finance and for developing enterprises. Value Chain Finance builds on business relationships and transactions to screen & monitor borrowers, enforce contracts and manage risks & costs Value Chain Finance is rooted in buyers' and suppliers' desire to expand markets, and to secure or increase product quality and quantity. Value Chain Finance takes a variety of forms in addition to cash lending, such as advances and off-balance sheet. The success and limits of Value Chain Finance are tied to the quality of cooperation between actors
26
Thank you
Similar presentations
© 2025 SlidePlayer.com Inc.
All rights reserved.