Supply chain finance innovation addressing trade finance gap in Africa

May 15, 2019

Enhanced integration between financiers, fintech’s and global and African corporates enabled by digital innovation, especially in supply chain finance, is providing banks sight and capability across the entire trade finance ecosystem. These advances are aiding the assessment of risk and identifying new synergies for financial institutions to close Africa’s trade finance gap using digital finance techniques.

An increase in the number and commitment of European and Asian multinational companies (MNCs) in Africa, especially in the agricultural, consumer, mining, oil and gas and telecommunications sectors, is increasing the need for more sophisticated working capital support on the continent. Standard Bank’s view across 20 markets in Africa collectively accounting for approximately 80% of the continents GDP, “confirms that MNCs in Africa today are increasingly seeking to apply the same supply chain financing techniques that they use in their home markets to their African operations,” said Ryan Stokes, Head, Trade International for Standard Bank. 

As global MNCs build their businesses in Africa they are looking to local banks to help them innovate domestic working capital solutions that match, or at least integrate with, their global practice and compliance. This means that, “optimised corporate balance sheet management in Africa needs to be supported by supply chain finance techniques capable of also addressing supplier or buyer side balance sheet optimisation and working capital requirements,” said Brendan du Preez, Head, Supply Chain Finance, Group Trade, Standard Bank. 

These supply chain finance techniques include:

1.Purchase and lending based supply chain finance techniques, such as receivables discounting and payables finance. 

2.Affordable risk-managed balance sheet optimisation solutions, allowing financial institutions to take on more direct risk on a non-recourse basis.

3.A growing demand to balance working capital needs with the counter party risk inherent in multinational companies’ value chains. The fact that  multinational companies are showing a willingness to share the risk inherent in some of these solutions indicates that, “multinational companies in Africa are under pressure to respond to strain and risks in their supply chains,” explained Mr Stokes.  

4.Increased requirements for supply chain finance lending base techniques. Aimed at supporting the value chain, “the financing of distributors demonstrates the growing expectation from multinational companies for their banking partners to support their value chains and assist in maximising their local presence,” added Mr Stokes.  

5.An increase in regional or local corporate demand for other supply chain financing lending base techniques, like invoice financing and pre-shipment financing.

6.Increasing demand for simple and easy-to-use digital solutions that meet the growing working capital needs of corporates in Africa.

7.The integration of digital solutions into companies’ corporate supply chains. Multinational companies increasingly expect their financial institutions to provide, “a degree of integration matching the complexity of each client’s supply chain funding needs,” said Mr du Preez. 

8.Collaboration with digital intermediaries from a financial institution perspective. 

Standard Bank’s convergence of an increasingly capable and digitally integrated supply chain finance product set is being recognised, and deployed by clients, across Africa. Digital innovations delivered via fintech partners or collaborative efforts between digital intermediaries, financial institutions and MNCs, “simplify processes by integrating supply chain finance solutions more closely with clients’ own business value chains,” explained Mr du Preez. Standard Bank is currently partnered with a host of intermediaries, both main stream operational or at proof of concept level. 

Effectively integrated and delivered supply chain finance techniques can also provide preferential rates for small and medium enterprises, “especially if structured around an integrated multiclient ecosystem where risk is borne by a global MNC,” said Mr Stokes. While the benefit for the MNC is that it builds a secure and healthy supply chain, insights gained also identify opportunities to begin funding the supply chain much earlier on. 

Simply put, “when you can see, and integrate, the whole value chain you can do more. Digital allows this,” said Mr Stokes.  

Since many of these techniques are still at an early stage of development amongst African corporates as well as global MNCs operating in Africa, the opportunity for growth in Africa is much larger. This is especially so for Standard Bank, “able to leverage the credit strength of five leading global financial centres across 20 markets in Africa,” said Mr Stokes. 

As an early adopter and facilitator of global supply chain finance techniques in Africa, Standard Bank actively implements International Chamber of Commerce standards and practices. Standard Bank’s active involvement in global industry-leading supply chain finance working groups means that, “we are able to innovate global best practice in line with Africa’s unique needs and challenges,” said Mr du Preez. This is also helping global best practice in supply chain finance reflect Africa’s own unique circumstances, increasingly aligning African supply chain finance practice with global norms, increasing access to international capital and directly driving Africa’s growth. 

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