German development bank KfW Ipex-Bank has revealed a new CIRR export financing programme designed to support large-volume German exports to Africa.
Under the Africa CIRR programme, banks can grant loans to buyers of German exports in Africa, or to banks in the buyer’s country at the commercial interest reference rate (CIRR).
KfW Ipex-Bank’s, a wholly owned subsidiary of KfW, role is to administer the Africa CIRR initiative on behalf of KfW.
Based on the rates of treasury bonds plus a margin of 100 basis points, the CIRR rate is a fixed interest rate that the OECD sets for its member states on a monthly basis as a minimum reference rate for officially supported financing of goods exports and services.
A spokesperson for the bank tells GTR that automotive goods and machinery – both large export sectors for Germany – are likely sectors to receive backing. The programme has been presented to banks, but the spokesperson explains that it is too early to comment on what take up might look like. They say that demand will dictate the length of the programme.
The spokesperson adds that the decision to support exports to Africa ultimately stems from the German government and largely for two reasons: first to support the wellbeing of countries and of people for development purposes. “And second, to support the German export industry in a region which provides very attractive market perspectives.”
A guideline document for Africa CIRR says that the loan amount will typically exceed €85mn.
It adds: “Each bank is free to agree on loan terms and conditions in accordance with the following provisions: fixed contractual interest rate as per the applicable CIRR rate; the contractual rate may also include a market-based mark-up as an additional risk margin for the bank; customary handling fees; commitment fee of generally 0.375% per annum.”
KfW has listed an exclusion list of specific projects from the programme. These include: nuclear power plants; trading or production of any product or activity subject to national or international phase-out or to an international ban; and production or trade of weapons or critical components of them.
CIRR rate bounces back
In the latter half of 2019, GTR reported that CIRR rates dropped to their lowest-ever level in September, with euro finance for 8.5-year repayments at 0.14%, dollar finance at 2.49% and Swiss francs at a negative rate of -0.16%.
Gabriel Buck, managing director of GKB Ventures told GTR at the time: “For an exporter, the implications for this are dependent on whether you have access to the CIRR rate. If you are an exporter in a country which provides sufficient CIRR rate capacity then you will be a winner and you should be tapping that support and linking CIRR to your exports. It will make your exports much more attractive from a buyer side. However, not all export credit agencies (ECAs) offer the OECD CIRR rate. Some don’t, and some only offer a small amount because they don’t have a huge appetite or capacity to offer it.”
He added that for the buyer a low CIRR rate is almost certainly going to benefit them. “Not only that, but with the current uncertainty in the global financial markets, the ability to have an open and transparent and low-cost fixed interest rate is very appealing. I cannot see anything that is not attractive in the CIRR rate from a buyer or borrower’s perspective,” he added.
Since the article was published the rates, which are set on the 15th of each month, have increased. As of January 15, 8.5-year repayments for euro finance are at 0.48%, dollar finance is at 2.68% and Swiss francs are now at a positive rate of 0.32%.