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

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This report was written for FSD Kenya’s GrowthFin programme by Phillippe H. Guitard from GFA Consulting Group. The report was commissioned by FSD Kenya. The findings, interpretations and conclusions are those of the authors and do not necessarily represent those of FSD Kenya, its Trustees and partner development agencies. FSD Kenya Financial Sector Deepening The Kenya Financial Sector Deepening (FSD) programme was established in early 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty.Working in partnership with the financial services industry, the programme’s goal is to expand access to financial services among lower income households and smaller enterprises. It operates as an independent trust under the supervision of professional trustees, KPMG Kenya, with policy guidance from a Programme Investment Committee (PIC). In addition to the Government of Kenya, funders include the UK’s Department for International Development (DFID), the World Bank, the Swedish International Development Agency (SIDA) and Agence Française de Développement (AFD).
Table of Contents Abbreviations ii-iii Executive summary 1 Chapter 1 JUSTIFICATION AND OBJECTIVES 5 1.1 Antecedents and justification 5 1.2 Objective of the project 5 Chapter 2 METHODOLOGY 6 2.1 Desk phase 6 2.2 Field phase 6 2.3 Final phase 7 Chapter 3 RESULTS 8 3.1 The environment for trade finance in Kenya 8 3.1.1 Country background 8 3.1.2 The financial sector and trade finance 11 3.1.3 SMEs in Kenya 17 3.2 Availability, cost and constraints in trade finance 18 3.2.1 Trade finance operations in Kenya 18 3.2.2 Trade finance services to SMEs, costs and constraints 19 SME TRADE FINANCE – REVIEW OF FACILITIES AVAILABLE IN KENYA • i 3.2.3 The specific trade flows of the various sectors and the 22 provision of trade finance 3.2.4 Contraints to SME trade finance 24 3.2.5 Strengths and weaknesses in trade finance for SMEs 26 Chapter 4 RECOMMENDATIONS 4.1 Raising the technical capacity and awareness of the various 27 stake holders involved in Trade Finance operations 4.2 Raising the banks’ financial capacity to deliver trade 28 finance support to their clients 4.3 Improve the efficiency and reliability of collateral and collateral 28 management 4.4 Improve the availability of commercial export insurance 28 ANNEXES 1. Persons met 33 2. List of documents and web sites consulted 35 3. Kenya’s main economic sectors 37 4. Bank charges 40 5. Terms of Reference of the Consultancy 42
Page 1: SME TRADE FINANCE REVIEW OF FACILIT
Page 5 and 6: EXECUTIVE SUMMARY This report revie
Page 7 and 8: Kenyan context, where most of the e
Page 9 and 10: Chapter 1 JUSTIFICATION AND OBJECTI
Page 11 and 12: World Bank Payment Risk Diagram), t
Page 13 and 14: The Kenyan international trade patt
Page 15 and 16: Year Imports ($ millions) Table 4:
Page 17 and 18: The banks’ trade finance involvem
Page 19 and 20: Security and collateral The main dr
Page 21 and 22: Recommendations: There is a lack of
Page 23 and 24: A positive development is the rapid
Page 25 and 26: This becomes especially problematic
Page 27 and 28: The tea and coffee sectors The tea
Page 29 and 30: SME limited capitalisation Most SME
Page 31 and 32: Chapter 4 RECOMMENDATIONS A number
Page 33 and 34: Improve banks’ and SMEs’ awaren
Page 35 and 36: Lead Institution Proposed action Ob
Page 37 and 38: ANNEXES 1. Persons met Organisation
Page 39 and 40: REFERENCES 2. List of documents and
Page 41 and 42: Agriculture is the main engine of t
Page 43 and 44: Manufactured Exports The following
Page 45 and 46: SME TRADE FINANCE - REVIEW OF FACIL
Page 47 and 48: 3.1. Desk Research The consultant(s
Page 49 and 50: NOTES SME TRADE FINANCE - REVIEW OF
Page 52:
FSD Kenya Financial Sector Deepenin
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SME Trade Finance: Review of facilities available in - FSD Kenya

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