CDC Group plc (“CDC”), the UK’s development finance institution, and Standard Chartered Bank (“Standard Chartered”) have today announced a risk participation agreement that will support new working capital lending of up to US$50 million to businesses in Sierra Leone.
The agreement comes at a time when working capital needs are increasing for businesses in the country. Economic growth in Sierra Leone is slowing as a result of the Ebola crisis, with GDP growth, which was expected to be 11.3% in 2014, revised downwards to 4%. The revised estimates come on the back of shortages in the supply of basic essential commodities and disruptions to supply chains, as well as reduced production from the mining sector.
African banks currently face constraints on their capital bases which mean many are unable to provide as much working capital as they would like. This agreement by CDC allows Standard Chartered to increase the number of loans it makes in Sierra Leone. The one-year deal will see CDC and Standard Chartered share the default risk on up to US$50 million of new loans originated by Standard Chartered in the West African state.
By providing short-term loans and overdrafts to a number of businesses, the facility will support them to continue to operate, to meet their day-to-day finance needs, and to grow, despite slower economic growth and supply chain disruption.
Although the facility does not explicitly target Ebola relief efforts, a number of the companies which it is expected to support are playing a direct role in mitigating the effects of the crisis. Supporting the working capital requirements of these businesses will enable them to scale up their operations to supply consumer goods to affected zones.
For example, many of the companies that are expected to benefit from this facility are involved in the import and distribution of key food staples such as rice, flour, cooking oil and sugar, as well as non-food items such as building materials, hygiene products and petroleum products, which are critical to Ebola relief efforts.