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