SMBCE MRPA

Africa Financial services

Our investment

In 2017, CDC and SMBC Bank International (SMBC BI) signed a $100 million risk participation agreement to increase the availability of trade finance in Africa. In 2020, CDC increased the facility to $200 million to provide additional counter-cyclical support during the COVID-19 pandemic to help mitigate the indirect economic impacts of the crisis.

The agreement allows SMBC BI to increase its limits to local banks, which has the potential to increase the total volume of short-term trade credit by up to $450 million per annum. This will allow domestic banks in Africa to support trading businesses in importing commodities and equipment and ultimately support economic opportunities and access to goods for employees and consumers. By the end of 2020, the agreement had enabled approximately $2 billion in trade volumes across six countries in sub-Saharan Africa.

Impact
  • Support economic opportunities (SDG 8.1, 8.5) and improve resiliency to the indirect economic impacts of COVID-19 (SDG 1.5).
  • Access to goods and services (SDG 1.4, 2.1), including food and other commodities.
How?

Economic enabler: CDC has provided a risk-share arrangement so that SMBC BI can extend more foreign currency trade credit to regional and domestic banks and sustain higher trade volumes than the bank can support without CDC’s support. This will enable businesses to import the commodities and equipment they need to sustain business operations, market output and contribution to GDP, ultimately leading to job/livelihood retention and the continued or increased availability of goods in the market.

Stakeholder Geography Characteristics
Employees, consumers

Pan-African. Since 2018, over 90 per cent of CDC’s trade participation under this facility has been in category ‘A’ and ‘B’ countries, e.g. Nigeria, Ethiopia and Cote d’Ivoire. The remaining has been in category ‘C’ countries such as Kenya.

Given the variance of industries in which the businesses operate, for characteristics of people who ultimately benefit from the enabled trades, we assume mass market characteristics and demographics of the respective geographies.

Scale Depth/Duration

It is not possible to state the number of people who will be reached, so we use the scale of the facility and enabled trade as a proxy. Based on assumptions related to average tenor and utilisation, we anticipate that the $200 million facility will enable up to $450 million in additional trade volumes per year.

In October 2020, the World Bank adjusted its real GDP growth projection for Africa to -3.3 per cent in 2020, after expanding by 2.4 per cent in 2019. As a result, impact is expected to be deeper in a context where circumstances have worsened as a result of COVID-19, i.e. lower household welfare due to higher rates of unemployment and lower access to goods/services.

Grid Score Contribution

3.93

Market context: The global trade finance gap is estimated to be $1.5 trillion, and the average unmet demand in Africa represents 5.5 per cent or $91 billion

To help us direct our investments, we use a tool called the Development Impact Grid. The Grid scores every investment we plan out of a score of four, based on two factors: the difficulty of investing in the country and whether investment in that sector will lead to jobs.

  • Financial: Commercial funding is not available in these structures in sufficient volumes in CDC’s markets. Particularly in the current COVID-19 context, there is increased retrenchment of capital, making commercial investors less willing and/or able to support African banks.
  • Value-add: CDC is offering preferential terms, e.g. increased risk share or longer tenors, for trades involving the least developed countries and COVID-19 priority sectors such as food and healthcare commodities to help support trade flows in essential goods.
Risk
  • Evidence: Visibility on the impact on ultimate borrowers depends on SMBC BI and the local banks’ ability to provide data on underlying borrowers. SMBC BI provides monthly data on underlying trades financed through the facility, including information on country, sector and a description of goods. We mostly rely on theory, evidence and macro trade data to understand the indirect impact of trade on capital markets, economies and people.
  • External: There may not be enough demand and/or other trade constraints could be hindering the ultimate impact to occur e.g. logistical, trade policy.

Expected impact

Trade finance supports the supply chain of many industries and is key to the success of any developing economy. Since the global financial crisis, growing businesses in Africa have struggled to access the finance they need from local banks to help them expand and reach international markets.

Our arrangement with SMBCE aims to boost the availability of trade finance in some of Africa’s poorest countries. This is expected to generate over $500 million of additional trade, supporting job creation, boosting exports and enabling regional economic growth.

The agreement will support local banks in sub-Saharan Africa (excluding South Africa) to offer trade finance products to their business clients. These products, such as letters of credit for import and export, and documents against payment, are crucial to businesses that rely on trade for growth and job creation.

Environmental and social aspects

We worked closely with SMBCE to ensure that trade finance transactions delivered by the facility met international environmental and social standards.

Key facts

Status:
Active
Region

Since 2012, we’ve only invested in Africa and South Asia. Investments outside these regions are from our pre-2012 portfolio.

:
Africa
Sector

We have seven priority sectors. However, we continue to invest outside these sectors, largely in the most challenging regions, as new investment supporting any sector helps to underpin the private sector, and create jobs and livelihoods for people.

:
Financial services
Investment type

We provide capital in three broad ways: direct equity, debt, and intermediated equity (principally through investment funds).

:
Direct Debt
Start date

For direct investments, this is the date CDC committed capital to the business or project.

For funds, this is the date that CDC committed capital to the fund.

For underlying fund investments, this is the date that the fund invested capital into the business.e

:
December 2017
Amount

For direct investments, this is the total amount that CDC has committed to the business or project (it may be a combination of equity and debt).

For funds, this is the total amount that CDC has committed to the fund.

:
$100m
Domicile

This is the investee company’s place of incorporation; or a fund’s jurisdiction.

:
United Kingdom

CDC is becoming British International Investment