Standard Chartered has agreed a US$100mn facility with British International Investment (BII) to extend trade finance across key sectors of the East African economy, with a focus on economic empowerment for women.
Through the facility, Standard Chartered will extend trade and working capital finance to companies in Kenya and Tanzania, supported by a risk participation agreement with BII, the UK’s development finance institution.
The two institutions say in a joint announcement today that the facility is expected to facilitate transactions totalling more than US$450mn across East Africa, including in agriculture, food production, healthcare, industrials and infrastructure.
It also integrates criteria set out by the 2X Challenge, an initiative launched in 2018 by a coalition of private a public sector investors to mobilise capital that empowers women in developing countries.
Speaking to GTR ahead of the announcement, Patrick Makau, executive principal and head of trade and working capital for Kenya and East Africa at Standard Chartered, says sharing risk with BII allows the lender to extend greater volumes of trade finance during a time of geopolitical upheaval.
“For the last five years, there have been a lot of geopolitical issues that have caused uncertainty and disruption, and right now we’re in the midst of trade wars and supply chain shifts,” he says.
“The question for a trade finance banker becomes how you can manage this risk, as well as the corporate and country risk, to support the underlying economy. BII and Standard Chartered share similar philosophies around financial inclusion and sustainable growth, especially in emerging markets, and that’s what we want to achieve with this particular transaction.”
The risk-sharing agreement applies across a range of trade finance products, including supply chain finance, which Makau says is an effective way of providing SME suppliers with financing while benefiting from rates offered to their corporate buyers.
It builds on a long-standing partnership between BII and Standard Chartered, which started in 2013 and has enabled more than US$10bn in trade flows across 10 countries, says Freddie Tucker, investment director for trade finance at BII.
It also follows a US$350mn risk participation agreement announced by Standard Chartered and BII last year, focused on supporting the provision of trade finance to corporates and SMEs in Africa and South Asia.
“In the last year, we’ve done approximately US$450mn in trade via those facilities, and we see this as an extension of that partnership,” Tucker tells GTR.
“When you look at the wider market and the volatility that’s going on in global trade at the moment, caused by various political shifts, it is important to us as a counter-cyclical investor to ensure there’s a continuation of trade in our markets.”
Looking ahead, Tucker says the facility could serve as a model for other similar transactions on the continent.
“Our aim as BII is to increase the provision of trade finance to firms within Africa, and although this facility focuses specifically on East Africa, we have ambitions to grow it wider to other markets if it proves successful,” he says.
Makau adds: “Africa is buzzing with opportunity. Our research indicates that African exports will reach US$1tn by 2035, from about US$640bn right now, and we expect intra-African trade to grow by about 3-4% per annum over that period.
“To support and leverage that growth, there is today a confluence of fintechs, development finance institutions, banks, trade credit insurers and so on all coming together. We also need to work with multinationals and large local corporates to support the underlying economy, which is mostly SMEs.”
The 2X Challenge, which was launched at 2018’s G7 Summit in Canada, is embedded within the agreement, with BII taking up a greater percentage of risk in a transaction if the borrower qualifies under its criteria.
“We are seeking out transactions that support gender equality and growth, and meet the 2X criteria, and in this case, we wanted to increase the provision of trade finance to those businesses,” he says.
