CDC Group (“CDC”), the UK’s development finance institution, and Standard Chartered Bank (“Standard Chartered”) have today announced the signing of a memorandum of understanding for a supply chain finance programme that will increase financing for SME suppliers in Africa and South Asia, thereby boosting economic growth and trade opportunities. The first countries to benefit from this scheme are expected to be Nigeria, Uganda, Ghana and Kenya.
SMEs in the supply chains of developing countries must often wait long periods (typically 30-90 days) to receive payment for delivered products. To finance this working capital gap and keep the business going while awaiting payment, suppliers often need to provide collateral to borrow short-term funds from their local bank. Many struggle to do so, meaning that their business growth and production levels are constrained.
The partnership between CDC and Standard Chartered will provide a financing ‘bridge’ that gives suppliers the opportunity to get paid early while enabling buyers in a supply chain to maximize their working capital. This improves cash flow for both buyers and suppliers, while boosting transparency and cutting risk across the supply chain. This partnership is a unique example of how blended finance helps boost international trade as an engine for inclusive economic growth and is central to achieving the Sustainable Development Goals (SDGs).
The agreement, which is a 50:50 risk-sharing facility, is expected to disburse at least US$150 million to suppliers over three years. Under the memorandum, the two institutions will bear the risks of local anchor buyers involved in supporting their supplier base. Buyers will typically be Standard Chartered clients, while the suppliers who will benefit most from early payment will be small companies in national and regional supply chains.
The global financial & commodity crisis sharply reduced the availability of trade finance and SME finance in many developing economies. Since then, CDC and Standard Chartered have been working to promote innovative risk-sharing and trade finance arrangements that maintain and expand financing lines and promote trade and investment in these economies. Around US$500m has already been put in place by the two organisations, including a US$50m programme to boost lending in Sierra Leone during the Ebola crisis, and a US$400m agreement in 2013 to help boost trade finance for businesses in Africa and South Asia.
In the week of the Commonwealth Heads of Government meeting, the UK Government’s Minister for Africa, Harriett Baldwin, welcomed the agreement:
“This week’s Commonwealth Heads of Government Meeting will see countries come together to find new ways to make business and trade easier across the region, and beyond.
I am delighted that this new partnership between CDC and Standard Chartered will begin operating in four Commonwealth countries – helping small businesses get the essential finance they need to grow, create jobs and open up opportunities for future global trade and shared prosperity.”
CDC’s Director of Trade and Supply Chain Finance, Admir Imami said:
“Helping business and countries in Africa and South Asia to grow is central to CDC’s mission. The agreement with Standard Chartered that we’re announcing today will help growing SME suppliers to gain better access to working capital and contribute to economic growth and job creation in their home markets and on the international stage. By building on our long-standing relationship with Standard Chartered we can support many of the businesses that, without collateral, struggle to get the financing they need.”
“We are delighted to be working with CDC once more. This agreement will ensure we provide the much-needed working capital to SMEs, which still face significant challenges in gaining access to credit despite being the life-blood of our economies,”
said Lisa Robins, Global Head, Transaction Banking, Standard Chartered.
“We have facilitated trade flows for more than 150 years in emerging markets. In Africa and South Asia alone, Standard Chartered supports over USD10 billion of trade annually and this supply chain programme is further testament to our continued commitment to these markets,”
added Lisa.
