BII-Citi risk sharing facility to boost SCF for African businesses

By Kanika Saigal
Posted on Friday, 20 May 2022 15:45

Citi Bank sign in Chicago. (AP Photo/Kiichiro Sato, File)
Citi Bank sign in Chicago. (AP Photo/Kiichiro Sato, File)

A new deal between British International Investment (BII, previously the CDC) and Citigroup for a $100m risk sharing facility aims to unlock supply chain finance (SCF) for African businesses.

However, with the trade finance gap in Africa at $81bn, according to the Africa Development Bank, the new facility is unlikely to make a dent in Africa’s supply chain financing needs.

“What we must recognise is that this is a step in the right direction,” says Parvaiz Dalal, global head of supply chain finance at Citi.

“Once the facility is underway and proven to be successful, we are confident that other partners will come to the continent and provide more supply chain finance solutions,” he says.

As Freddie Tucker, investment director, trade and supply chain finance at BII and one of the deal leads on the transaction says: “Many large enterprises may already have SCF facilities, but are unable to increase the size of these facilities due to other lines of finance they have with Citi.

As a product, SCF has not been as widely adopted in Africa as it has been in Europe, Asia, and other markets

“BII’s risk participation allows larger facilities to be provided, and therefore enables a greater number of local suppliers to benefit from early payment of invoices. Citi already offers SCF without risk share, but our participation allows them to increase the size of those facilities.”

BII aims to grow the facility over time, following greater use of SCF across the continent, says Tucker. “More broadly, BII works with 11 banking partners and has a portfolio of $929m in Trade and Supply Chain Finance across our markets in Africa and Asia. More than half of this is in Africa,” he says.

Working capital

SCF allows a third party – often a bank – to pay buyer’s invoices on their behalf. This type of financing solution is often seen as a ‘win-win’, as it frees up working capital for both buyers and suppliers, allowing day to day business activities to continue unhindered.

SCF instruments have seen huge growth since the global pandemic took hold in 2020, as larger companies looked to protect themselves and their suppliers from global supply chain shocks and shutdowns.

According to data compiled by the Boston Consulting Group, SCF volumes rose 35% in 2020 to $1.3trn, from $971bn in 2019. Growth in Africa followed this trend, with a rise of 34% year on year from $16bn to $21bn.

However, volumes in the continent pale in comparison to those seen elsewhere. In America’s supply chain, finance volumes rose 37% from $530bn in 2019 to $726bn in 2020; in Europe, volumes grew 31% from $257bn to $337bn over the same period.

“As a product, SCF has not been as widely adopted in Africa as it has been in Europe, Asia, and other markets,” says Tucker.

“BII would like to see a greater uptake of this product across Africa. Our partnership with Citi, one of the largest global providers of SCF, will enable them to increase their SCF lines to their customers or to offer new SCF lines,” he says.

Target

The facility will target SMEs and underserved or excluded businesses and will boost Citi’s annual supply chain finance volumes in Africa by up to $400m, says the BII.

“Our aim is to ensure local suppliers, small to medium sized enterprises (SMEs) and Broad-Based Black Economic Empowerment (BBEEE) businesses in Africa benefit the most from our risk share,” says Tucker.

SCF is a great tool for SMEs, but because of the global pandemic, larger companies have had to shift supply chain bases

“We continue to grow and expand our portfolio in an impactful manner and seek to address the trade finance gap in Africa,” he says.

As Dalal says: “SCF is a great tool for SMEs, but because of the global pandemic, larger companies have had to shift supply chain bases to fit evolving needs and there could be large financing requirements, which will need immediate financing.

“In such cases, the risk sharing facility can help us bridge the gap between SMEs­.”

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