SME Trade Finance: Review of facilities available in - FSD Kenya

14 • SME TRADE FINANCE – REVIEW OF FACILITIES AVAILABLE IN KENYA
The banks’ trade finance ability
Within the scope of this study it has not been possible to review systematically
the trade finance ability of all 44 banks operating in Kenya. Therefore,
conclusions could only be drawn on the basis of visits to a sample of
institutions.
It appears that the main banks have a full understanding of trade finance
techniques, which they apply in a sophisticated manner to the larger corporate
institutions. These take the form of structured trade finance operations, such as
the financing of the agricultural cycle by:
1.
2.
3.
4.
5.
funding the entrants (fertilisers, seeds, etc.) at the beginning of the
cycle;
providing the production costs;
funding the harvest and/or consolidation of the commodities;
funding the stocking of the product; and,
Finally by providing the post-shipment financing. All this takes place
against a contract/Letter of Credit/ Red Clause LC from a first class buyer.
Most of the larger banks have the necessary knowledge at the head office
and in the main branches. Yet it appears that most of the banks are hesitant to
spend time to pain-stakingly structure trade finance for SMEs, which often do
not present readily bankable transactions. On the other hand, smaller banks
which have the technical expertise seem to be more willing to get involved,
but do not have the financial means to incur such financial risks.
A number of institutions are providing training to the banks in trade finance.
The IFC organises a number of trade finance seminars for banks in the region.
Other institutions which should also be involved in such capacity building
activities are the Kenya Institute of Bankers and the Kenya School of Monetary
Studies.
The fact that banks are in the process of recruiting considerable numbers of new
employees will increase the need for additional training.
Recommendations:
Box 7: Importation: Administrative Requirements
FSD and other financial sector donors should offer to support the
smaller banks to encourage them to train their staff with regard to
trade finance operations. To avoid loss of trained staff, programmes
might include a clause restricting resignation after having received
such training. Financial support to trainers and training institutions
should help the promotion of training.
Local Financial Training Institutions, as well as other potential
trade finance trainers, should be invited to attend the trade finance
seminars organised by the IFC. This would help improve the local
training institutions’ capacity. A Training of Trainers component will
allow for the dissemination of such seminars and also ensure the
sustainability of the training programme.
Trade rules and regulations
The Kenyan rules and regulations affecting international trade are particularly
flexible. The absence of foreign exchange controls, as well as the absence of
requirements for transactions below $10,000, gives greater flexibility to SMEs’
transactions.
For trade transactions above $10,000, the requirements are limited to having
an import licence prior to the transaction, and having proof that the goods paid
for have effectively entered the country after the transaction. The responsibility
for the controls of these requirements has been vested in commercial banks,
which provides flexibility for known clients.
Kenya is a member of the International Chamber of Commerce and Industry
(ICCI). The ICCI regulates international trade finance transactions among
banks. It further provides an efficient framework to smooth operations and
resolve disputes, eventually through arbitration.
All Kenyan imports are required to have the following documents: import declaration forms (IDF), a clean report of findings and valid pro forma invoices from the
exporting firm. Firms exporting from Kenya need to obtain Form C 29 from the customs department. They also need to obtain the following documents, which
serve as certificates of origin, from Kenya’s Ministry of Trade and Industry: GSP Form A for US-destined goods; EURO 1 for exports to the European Union; PTA
Certificate of Origin for exports to the Preferential Trade Area (PTA), the Common Market or Eastern and Southern Africa (COMESA) areas; and Ordinary Certificate
of Origin for exports to all other parts of the world.
Source: Import regulations in Kenya according to the Canadian Trade commissioner: http://www.infoexport.gc.ca/ie-en/DisplayDocument.jsp?did=14353