Citi Strives To Boost Africa Supply Chain Finance BII Support
The latest news highlights a risk-sharing lending arrangement between Citi and BII (British International Investment) worth $100 million, focused on boosting supply chain financing volume in Africa by up to four times as a result.
Through this US$100mn funding support provided by BII, Citi is looking forward to improving its supply chain lending in the continent for Small and Medium Enterprises (SMEs) that often struggle to access trade finance services or other funding facilities. In the aforesaid deal, BII will deliver its guarantor services for the lending services given by Citi to small importer-exporters and underserved industries. It means that both the parties will bear 50/50 risk - BII would cover half the losses in a situation where a small business fails to pay the loan granted by Citi.
“The recent Master Guarantee risk-sharing deal will enable Citi’s supply chain financing structure to grow & enhance in Africa by up to $400 million” BII stated.
The partnership will help deliver capital in local currencies to the markets where SMEs opt for trade finance but find lending difficult due to the vulnerable business possibilities and currency fluctuations. It added that the program would support SME suppliers who are involved in a trade transaction with buyers and want to cut back the payment-receiving time.
According to a spokesperson, “For example, SMEs who are availing Citi’s SCF services are allowed to discount their receivables on the day of delivery vs. on the invoice due date. This would help maintain working capital flow for small suppliers without having to wait or borrow additional financing.”
The main purpose behind the Citi-BII SCF arrangement is to ensure a smooth and undisrupted flow of flexible capital to underserved segments as well as women-running organizations and companies targeted by the South African government’s Broad-based Black Economic Empowerment program, that urges businesses to bring black people in the work processes, encourage black businesses, and reward black communities impacted by land repossession.
“We are extremely pleased to associate with BII to aid the enhancement of SCF financing in Sub-Saharan Africa,” explained Chris Cox, global head of trade and working capital solutions, treasury and trade solutions, at Citi. “This deal will help us strengthen our supply chain finance services and boost lending to suppliers who are in desperate need, especially the SMEs that generally face a lack of funds.”
The necessity of the arrangement was felt due to the increasing application rejection rates for trade finance by SMEs in Africa along with decreasing bank participation activities. According to a study conducted by the African Development Bank in 2020 and the African Export-Import Bank, the trade finance gap in Africa reached over US$81bn in the pre-pandemic era, and the pandemic-triggered economic declination and capital flight have also led to the lack of trade finance amount to companies in the continent, especially SMEs.
The further transaction is the ultimate excursion for BII’s trade and supply chain finance program which has so far upheld US$20.9bn of trade across Africa and South Asia through an association with local, and global financial intermediaries.