Development Financing Alternative Models in a
Changing World
Alternative Financing Model, Country
Experiences
Presented by
Mr. Kofi Adomakoh
Director, Project and Export Development Finance
Afreximbank
AADFI/ADFIAP CEO Forum
November 4th to 6th 2014
Kuala Lumpur, Malaysia
The Trade Finance Bank for Africa
Content
In this presentation, I shall:
1. Overview of Afreximbank;
2. Access to finance in Africa;
3. Structured Trade Finance “A Tool to debottlenecking Africa’s financing challenges”:
4. Alternative financing provided by
Afreximbank.
The Trade Finance Bank for Africa
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1. Overview of Afreximbank
The Trade Finance Bank for Africa
The Bank
 By way of introduction, Afreximbank is a Pan-African Multilateral
Financial Institution created in 1993 as an international public
private partnership to promote and finance intra- and extraAfrican trade.
 It is headquartered in Cairo, Egypt and has branch offices in Abuja
(Nigeria) and Harare (Zimbabwe). It offers credit (trade and
project finance), risk bearing and trade information/ advisory
services.
The Trade Finance Bank for Africa
(4)
Overview of Afreximbank
Has preferred creditor status in its member
countries
Mission is to:
Stimulate
a
consistent
expansion,
diversification and Development of
African Trade while operating as a firstclass, profit-oriented, socially responsible
financial institution, and a center of
excellence in African trade matters.
The Bank’s trade finance activities
complements the work of other
development banks, e.g IBRD, EIB and
AfDB.
The Bank works with African and nonAfrican
Export
Credit
Agencies,
Development
Finance
Institutions,
Commercial Banks and other Multilateral
Institutions to support trade finance
activities in Africa.
The Trade Finance Bank for Africa
2. Access to Finance: A challenge to
Africa.
The Trade Finance Bank for Africa
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2.1 Access to Finance: A Challenge in Africa
 Africa’s slow pace of development, particularly during 1980s and 1990s
has been attributed to weak state of infrastructure across the continent.
 The infrastructure gap in many parts of the continent stemmed from
inability of many countries to raise term funding as many international
creditors continue to perceive the continent as high risk; and
 the few funds available to African counterparties had short tenors
usually less than 1 year, high cost and with stringent security
requirements including cash collateral.
The Trade Finance Bank for Africa
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2.2 Explaining Africa’s Financing Challenges
 Two major factors, political crisis and poor economic performance in the 1980s
and 1990, have contributed to the current challenges confronting many
African countries in accessing Term Funding for infrastructure and economic
development.
Economic Risk
Trends in Africa's Economic Growth, 1960-2011, (percent)
 In the 1980s and 1990s Africa was
8
generally regarded a basket case
6
and was shun by many investors.
 A continent that had achieved
sustained economic expansion of
over 5% annually during 1960-
1979, could only manage a dismal
2% during 1980s and early1990s.
4
2
0
-2
1960
1970
1980
1990
2000
2010
source: WDI, 2012
The Trade Finance Bank for Africa
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 Political Risk
 Financing challenges in Africa is heightened frequent political crises
across the continent. For instance, in 2009 alone of the 76 socio-political
crises scenarios recorded in the world most of them took place in Africa
(26 cases);
 Political risk also arises from unanticipated changes in regulations or
failure by the government to implement tariff adjustments because of
some political considerations.
 Politics induced quasi commercial risks may also arise when the project
is facing state-owned suppliers or customers, whose ability or willingness
to fulfill their contract obligations towards the project is questionable.
The Trade Finance Bank for Africa
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Traditional vs Structured finance.......
Until post financial crisis in the mid-80s, banks involved in international
finance relied on balance sheet lending and government guarantee.
Early 90s saw the introduction of Structured finance which was based on
the transaction for which the finance is provided.
 Such techniques aim to transfer risks in financing transaction from
parties less able to support those risks to those more equipped to
support them in a manner that ensures automatic reimbursement of
advances from the underlying assets such as inventory and export
receivables... This forms the pillar of structured trade finance.
Structured finance revolves around identify and mitigating risks
associated with transactions..and convert wealth, in the form of
commodities, into ready cash.
The Trade Finance Bank for Africa
3. Structured Trade Finance as a Tool to debottlenecking Africa’s financing
challenges.
The Trade Finance Bank for Africa
STRUCTURED FINANCE
Art of transferring Risk in Financing Transactions from
Parties less able to Bear those Risks to those more equipped
to bear them in a manner that ensures Automatic
Reimbursement
of
Advances
from
the
Underlying
transaction Assets.
It encompasses:
“Any structure whereby certain assets (inventory, contract, export
receivables etc) with more or less Predictable cash-flows can be
isolated from the originator, Pledged (Sold, leased etc) and used to
support the Financing being raised (as collateral and/or source of
reimbursement or repayment) or to substitute it”
The Trade Finance Bank for Africa
(Emmanuelle Moors de Georgio)
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 Accordingly, Structured Finance Converts Uncertainty to
some “Certainty” (Predictable Cash-flow) and thereby
Mitigates Risks.
Less bankable deals therefore become more bankable.
The Trade Finance Bank for Africa
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Through use of structuring techniques, financiers can
control their level of risk
Without structured
finance:
With secured
finance:
financier
Will the
borrower
reimburse?
Potential
borrower
With structured
finance:
financier
How to
$
collateral?
Potential
borrower Goods
The Trade Finance Bank for Africa
Will the
borrower
produce?
$
Potential
borrower Offtaker
Practical use of structured trade finance:
There are no distinct standardized types of structure trade finance
transactions since one essential principle of these transaction is the
ability to tailor a structure that will satisfy the needs and
circumstances of all parties involved, provided that perceived or real
risks are mitigated. We are going to present some basic forms of
structured finance, their concept, and transactions flow.
1. Export receivables-backed financing.
The Trade Finance Bank for Africa
Structured Receivables-Backed Financing
Shipment
Exporter
Payment at
shipment
Shipment
Buyers (Oil Refineries)
Letter of Undertaking
(remedial procedures in
case of non-performance)
Letter of
Acknowledgment
Payment after 30-90
days from B/L date
through an escrow
account
Assignment of
contract/A/R etc..
XYZ Bank
The Trade Finance Bank for Africa
EXAMPLE:
Financing
Receivables-backed
1. Underlying transaction:
naphtha and crude oil.
To
trade
2. Lender: XYZ Bank.
3. Facility Amount:
credit facility.
US$ 50 million for
4. Exporter: Oil company
5.. Importers: oil refineries worldwide.
7. Tenor: 30-90 days from B/L date.
8. Collateral:
receivables.
Outstanding
account
9. Facility Period: 1 year.
10. Each transaction amount: Over US$5
million.
This financing is given to the exporter once
goods are shipped and repayment is done
automatically by importer through an
escrow account.
This
creates
an
automatic
reimbursement procedure.
This enables exporters to use future
trade flows to raise self-liquidating
export-backed financing at better cost
and tenor. It also enables financiers to
externalize country and credit risks by
the assignment of export contracts and
receivables, and by receiving payment
in an offshore escrow account.
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4. Alternative Financing Model
provided by Afreximbank
The Trade Finance Bank for Africa
BANK’S STRUCTURED PROGRAMMES & FACILITIES
The Instruments are categorised into two Groups/Schemes:
• Export Development Scheme; and
• Trade Development and Diversification Scheme.
Instruments
Trade Expansion &
Diversification Scheme
Export Development
Scheme
 Export Development Programme;
 Project-Related Financing
Programme;
 ECA Loan Facilitation Programme;
 Asset-Based Lending Programme;
 Country Programme;
Dual Recourse
Non-Dual Recourse
 Note Purchase Programme;
 Syndications Programme;
 Receivable Purchase /
Discounting Programme
 Special Risks Programme;
 AFRICOIN
 Guarantee Programmes; and
 Financial Future Flow Pre-Financing
Programme; and
 Local Currency Programme
 Advisory Services.
The Trade Finance Bank for Africa
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Export Development Schemes
Facilities under the EDS are targeted at promoting industrialization
and improving Africa’s export competitiveness. Broadly most of the
facilities under the EDS have tenor not exceeding 7 years. Some of the
programmes are discussed hereunder
1. Export Development Programme
(EDP)
 The
EDP
combines
Credit,
Risk
Bearing, Twining, Market Access as
well as Advisory services geared
towards facilitating non-commodity
export production, especially export
manufacturing.
The Trade Finance Bank for Africa
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Export Development Schemes
2. Project-Related Financing
Programme
 Through this programme, the Bank
provides
limited
recourse
project
financing in support of export projects,
including mining, manufacturing and
other
trade
related
infrastructure
projects.
3. Guarantee Programmes Related to Obtaining Large Contracts
This programme is designed to create or improve the capacity of African
entrepreneurs to bid for large businesses/contracts in Africa. In this regard, the Bank
provides the following guarantee facilities:
a. Bid Bonds;
b. Advance payment guarantees; and
c. Performance guarantees
The Trade Finance Bank for Africa
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Export Development Schemes
4. Country Programme
This programme is designed to assist the Bank’s member countries in
peculiar difficulties not amenable to solutions offered individually by the
Bank’s menu of products. This programme has been used to assist several
countries in some difficulties, including Zimbabwe, Côte d’Ivoire and
Sierra Leone.
5. ECA Loan Facilitation Programme

Through this programme, the Bank works with other ECAs to promote
the acquisition of essential goods, especially capital goods by African
Institutions.

Using this programme, the Bank provides guarantees to enable ECAs
finance eligible imports of Africa.

The Bank may also take Line of Credit for direct disbursement to its
clients for importation of goods from the country of origin of the
creditor ECA.
The Trade Finance Bank for Africa
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Trade Expansion & Diversification Scheme
1. Receivable Purchase/Discounting Programme
This programme involves a family of facilities, namely:
 Forfaiting Facility
 Invoice/Receivable Discounting Facility
 Factoring and Receivables Management Facility
 Joint Bill Discounting/Financing and Refinancing Facility:
2. Structured Pre- and Post Export Financing Facility;
3. Reimbursement Guarantee Facility;
4. Export Credit Guarantee;
5. Correspondent Banking/Africa Letter of Credit Confirmation Facility
(Africorrbanking)
The Trade Finance Bank for Africa
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Trade Expansion & Diversification Scheme
6. .Syndications Programme
This is a risk-bearing programme the Bank uses to leverage trade and
project financing into Africa. Through this programme, the Bank arranges
or joins a syndicate or club of reputable international and/or African
banks in providing financing to African entities in trade and/or projectrelated activities.
7. Financial Future-Flow Pre-Financing Programme
Financial future-flow transactions refer to future-flow debt offerings that
rely upon receivables not generated from export of physical goods for
repayment. Such receivables include credit card or cheques, migrant
remittances, royalties arising from Bilateral Air Services Agreements
(BASA), over flight fees, etcetera.
The Trade Finance Bank for Africa
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Trade Expansion & Diversification Scheme
8. Country Risk Guarantee Facility
This programme is aimed at making the sovereign risk of African
countries more acceptable by transferring this risk to Afreximbank credit
risk. Under this programme, Afreximbank guarantees international and
African banks with credit exposures to Africa against certain country risk
events.
9. Local Currency Programme
This programme serves important trade facilitation function as it helps the
Bank to provide matching currency to its clients' needs, for example,
providing working capital financing for the purchase of local inputs for
export manufacturing. Further, in a number of sub-regions operating or
planning to introduce currency areas, the local currency programme helps
promote intra-regional trade.
The Trade Finance Bank for Africa
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New Programmes & Facilities
In order to accelerate the realization of its medium term Trade Developmental
goals, the Bank has introduced new programmes to augment existing ones.
These include:
1. Construction/Tourism-Linked Relay Facility (CONTOUR)
This is a risk sharing facility introduced by the Bank with a view to
supporting the Bank’s goal of promoting tourism in furtherance of the
continent’s export diversification objective. Under the facility, the Bank
shares the risk of developing hotels and tourism facilities by transferring
contraction risk to parties better able to manage the risks. The facility has
been fully elaborated and introduced with clear procedures, guidelines and
accompanying marketing documents.
The Trade Finance Bank for Africa
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New Programmes & Facilities
2. African Content Support Programme (ACSP)
 This programme is designed to increase the capture of value accruing to African
countries from their extractive sectors;
 It seeks to increase value addition in the extractive industries by increasing the
participation of African entities in these sectors;
 Through this programme, the Bank will provide financing and advisory services
to entrepreneurs who provide or seek to provide support services in the
extractive industries in such a way that value –added in Africa is increased.
 The ACSP includes the following
facilities:
i. Mining
Services/Oil
Services
Facility;
ii. Facility for the Discount and/or
Purchase of Receivables; and
iii.Asset-Based Lending.
The Trade Finance Bank for Africa
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New Programmes & Facilities….
3. Intra-African Trade Facilitation Programme (INTRAFAP)
Through this programme the Bank seeks to promote trade, economic cooperation
and regional integration in the African continent. It is also designed to provide a
platform for mobilizing financial, technical and other resources for the
development, promotion and financing of intra-African trade. This programme is
being implemented using 3 facilities and 2 services, namely:
i.
intra-African Letter of Credit Support Facility (ILCSF);
ii. intra-African Trade Services Support (ITSS);
iii. intra-African Export Financing Facility (IAEFF);
iv. Advisory Services and Market Research; and
v. Policy Advocacy.
The Trade Finance Bank for Africa
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New Programmes & Facilities……..
4. Health and Medical Tourism Programme (HMTP)
This programme is similar to Contour, in the sense that it seeks to promote
diversification of Africa’s exports by supporting the development of worldclass health facilities in Africa to meet the growing health care needs of
Africans.
Under this programme, the Bank provides appropriate financing for the
construction of first class hospitals or the purchase of modern medical facilities
across the continent.
The Bank, under this programme, will also facilitate the use of expertise of
African
medical
professionals
domiciled
abroad
through
exchange
programmes and/or sabbaticals.
The Trade Finance Bank for Africa
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New Programmes & Facilities…….
5. Africa Cocoa Initiative (AFRICOIN)
 This initiative was designed as part of the Bank’s EDP to hasten the
pace of industrialisation of the continent by promoting value
addition in Africa’s cocoa sector.
 Through this programme the Bank provide:
a) term funding to support acquisition or expansion of existing
capacity in order to increase the processing of cocoa beans into
raw materials (liquor, cocoa butter, and powder) to feed
chocolate manufacturing plants in Europe, North America, and
Asia; and
b) Cocoa bonds to support the planting of new trees and to promote
consumption of cocoa products in Africa and Asia.
The Trade Finance Bank for Africa
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New Programmes & Facilities………
6. African Diaspora Programme
 This programme was introduced for the purpose of:
a) assisting African governments with significant remittance receipts to
access reasonably-priced external trade and project finance from the
international credit markets, using remittances by African in the
Diaspora as collateral and main source of repayment.
b) Given the rapid growth in demand for and trade in African ethnic
foods and vegetables in Europe and the USA as the population of
Africans in the Diaspora continue to soar, the Bank intends to facilitate
the import of such goods by supporting players in the supply chain.
The Trade Finance Bank for Africa
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New Programmes & Facilities……..
7. Africa Central Bank Deposit/Investment Programmes (ACBDP)
The Bank intends to use this programme to mobilize part of the growing foreign
exchange reserves of African central banks to fund viable trade and project
ventures in Africa as part of on-going efforts at making Africa’s growing external
reserves more supportive of the continent’s trade and economic development
process while diversifying the funding sources of the Bank.
8. Non-Equity Modes (NEMs) of International Production
This programme is designed to complement existing programmes under the
Bank’s EDP to support long-term industrial development by building capacity,
including through technology dissemination and domestic enterprise
development, and by helping host countries to gain access to global value chains.
NEMs will be implemented through 3 Facilities, namely Franchise Financing
Facility (FFF); Export Agriculture Financing Facility (EAFF) and Contract
Manufacturing Support Facility (CMSF)
The Trade Finance Bank for Africa
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6. Conclusion
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ESSENTIALS TO STRUCTURED TRADE
 Enforceable commercial contracts;
 Acceptable performance risk;
 Acceptable off takers/payment risks;
 Avoid set offs in contracts;
 Do your due diligence very well;
 Understand the business well; and
 Avoid currency and price risks.
The Trade Finance Bank for Africa
Conclusion
 Access to financing has always been a challenge, however the
introduction of structured finance has enable the continent
continue its path towards development showing remarkable
growth.
 It is perhaps, more remarkable considering the multiplicity of
challenges that emerged in the global output growth, notably the
global financial and economic crises that broke in 2008/9 and the
sovereign debt crisis of the Eurozone that began in 2009.
 The once “hopeless continent” (by the Economist, 2010, May 11
Edition)” achieved an enviable pace of economic expansion of
about 4.8% per annum during 2001-10, making it, presently the
second fastest growing region behind Developing Asia
The Trade Finance Bank for Africa
Thank you for listening
Please visit Afreximbank website :
www.afreximbank.com
The Trade Finance Bank for Africa