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

16 • SME TRADE FINANCE – REVIEW OF FACILITIES AVAILABLE IN KENYA
Quantity and quality surveyors
To provide security to trading partners in international trade, Kenya has
competent and trusted surveyors. This includes an efficient public framework
based on the Kenya Bureau of Standards (KEBS).
Warehouses and bonded warehouses
A number of institutions offer warehousing services for enterprises and
collateral management for banks in the main cities of Kenya. This especially
allows traders of non-perishable goods to finance their inventory. They can
then pay for the goods when they are taken out of the warehouses.
The main commodities financed against pledge warrants appear to be fertiliser,
sugar, chemical products, oil and oil derivatives, raw material and furniture.
One of the largest institutions involved in such operations confirmed that eight
to ten banks are active in such a collateral financing scheme. These are often
smaller banks close to their clients, with a hands-on approach to trade finance
and imports.
The average outstanding amount of such collateral at the warehouse institution
amounted to KSH 5 - 6 billion, with an average outstanding duration of
three months. According to the service provider, the cost of the service is not
higher than the normal cost of warehousing plus the cost of the secured bank
borrowings.
The involvement of manufacturers willing to warehouse and pledge their
imported inputs is much less important. This is because storage and pledge
of plastic raw material is quoted as one of the few cases of manufacturer
involvement.
A similar warehouse receipt system was recently created and was supported by
the FSD. It was launched by the Eastern Africa Grain Council (EAGC), together
with Equity Bank and Lesiolo Grain Handlers.
The idea was to develop a sustainable warehouse receipt system which will
provide collateral to enable short term lending to grain farmers. The farmers
will thus be able to store their harvest until the most favourable time for sale.
Credit Bureaus
For the time being, Kenya has no full fledged credit information bureaus,
neither private nor public. This is largely due to the legal environment, which
does not allow the divulging of information by banks. This however is being
remedied and soon banks will be able to provide comprehensive information
on companies.
This favourable development should have a significant impact on the financial
transparency of SMEs, notably by allowing banks and eventually other
commercial creditors to feel more comfortable with their partners or clients.
This should likewise facilitate the risk analysis of the African Trade Insurance
Agency (ATI), to make inroads in Kenyan trade. Another consequence could
be the facilitation of factoring/forfeiting/invoice discounting operations being
developed by banks or specialised institutions.
Export insurance scheme
For the last few years, the World Bank has supported a regional initiative to
provide export credit insurance to exporters in the region. The African Trade
Insurance Agency has recently been restructured to provide political risk cover
for the countries of Eastern Africa.
It also now provides exporters with commercial risk cover (up to 90%) on
their receivables from anywhere in the world. The commercial insurance fee is
normally below 1%, while the political insurance fee depends on the country
risk.
The company has been active in the provision of political risk cover. However,
it was not possible to obtain an outline of the main countries covered so far.
Information has not been made available about the claims made under the
various covers issued by ATI.
The means of the institution are not yet satisfactory. It only has one analyst
who assesses the commercial risks on potentially hundreds of end buyers.The
company distributes its products through brokers.
It uses the re-insurance services of various international organisations on a
60/40 basis (60% of the risk remains with ATI). While the relevance of ATI is
acknowledged, in the future the company should be more involved in the
granting of commercial cover to exporters in Kenya.