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

20 • SME TRADE FINANCE – REVIEW OF FACILITIES AVAILABLE IN KENYA
Over the years CARE Canada has received institutional donor funding through its country offices for: 1) microfinance programmes, and 2) the development of
enterprise models that promote economic opportunity for local communities. Donors rely on CARE to assess exit and business sustainability once grant funding
comes to an end. The Fund Management team is, on behalf of CARE Canada, providing advisory support to manage a portfolio of such investments. These include
VegCare, a social enterprise that links smallholder farmers to local and export markets using an aggregation mode. It is now working with 705 farmers who sell
40 tonnes of vegetables per week. It has increased income for participating farmer families from less than US $300 per year to US $600 to 2000 per year. Farmers
growing for the export market are provided with training on European gap environmental and social standards.
The team has reviewed the various bank commission rates as published by the
Central Bank of Kenya (see Bank charges in Annex 5.6), as well as the recent
survey by the Central Bank: Comparing and Communicating Bank Charges,
Presentation of Findings 16 and the ranking based on these findings. Naturally,
the specific risk situation of the borrower and the particular operation under
consideration must be taken into account. Therefore, fees and commission
might understandably differ on a case to case basis.
Recommendation:
Constraints 18
Non-Governmental Organisations (NGOs) or the Central Bank
should commission a study that will rank banks according to
the costs of a package of usual trade finance services utilised by
import/export SMEs. A similar study was recently conducted for
commonly availed banking services. 17
Financial capacity of the banks
The financial capacity of the banks to accommodate the requirements of the
SMEs for trade finance services does not appear to be limited by funding
resources, existing refinancing or confirming lines. At least this seems so for
the larger banks, but might not always be the case for the smaller banks.
Furthermore, the Central Bank of Kenya’s maximum lending ratio to a single
client – 25% of bank core capital – is waived for discounts/advances against
clean documents.
Ability of the banks’ staff
The ability of the banks’ staff and their knowledge of trade finance operations
seems to be satisfactory in the larger banks’ head offices and main branches.
However, the rapid expansion of most banks’ branch networks causes a drain
on the available expertise.
Box 10: Case Study: Care Kenya
16 Central Bank of Kenya, Bank Charges. Retrieved from http://www.centralbank.go.ke/downloads/bsd/bankcharges/ trackingIndividualCustomer.pdf
17 Central Bank of Kenya, Bank Charges. Retrieved from http://www.centralbank.go.ke/downloads/bsd/bankcharges/ trackingIndividualCustomer.pdf
18 KIPPRA, Special Report No. 1: Legal and Other Constraints on Access to Financial Services in Kenya: Survey Reports. Retrieved from http://www.kippra.org/resources/abstract1.asp?pass=39
19 CARE Enterprises and Partners web site: http://www.care.ca/main/?en&homeSVF
This poses a continuous need to train newly-hired staff members as well as
bank personnel in smaller branches. To address this problem, a major Kenyan
bank is constantly training not only its staff in the smaller branches, but at the
same time, clients in smaller localities.
As previously mentioned, the IFC conducts training on trade finance topics.
Other providers of such capacity building activities in Kenya are a few NGOs,
such as the Care Enterprises and Partners 19 Organisation, or NakaAgro in the
fresh produce sector. Unfortunately with more than 150,000 exporters in this
sector, their impact has been quite limited.
Lack of a widely available export commercial insurance scheme
The lack of a widely available export commercial insurance scheme is also
a major drawback. The bankers, who usually benefit from the insurance
assignment, are also affected. Although, the African Trade Insurance Agency
has been in existence for a number of years, it has so far limited its coverage
to political risk insurance.
Recently, though the agency has started to provide commercial risk insurance.
For the time being it seems that the ATI’s means – in terms of manpower and,
more specifically, analyst capacity – are not yet at the level required by the
regional market it covers. However, such commercial insurance cover is widely
viewed as a necessary instrument to support a more robust trade finance
operations.
The legal environment for taking pledges on moveable assets
A significant constraint similarly arises from the legal environment for pledging
security, especially for the short term nature of trade finance operations. As
pointed out earlier, only the Vehicle Registry has so far been computerised
although there are plans to computerise the Company Registry. Furthermore,
the Land Registry and the Chattel Registry are likewise not computerised,
resulting in a lack of efficiency and reliability.