A plethora of non-bank lenders have stepped in to fill Africa’s trade finance gap, calculated by the African Development Bank to be in the region of US$120bn. Shannon Manders speaks to four of them.


Africa’s alternative trade financiers differ in structure, size and sectors covered, and they’re all aiming for the hefty slices of pie the banks won’t touch because of their low appetites for risk, the groundwork required to close deals, or a lack of the local resources needed to source and vet them.

The low-risk nature of trade finance versus other asset classes was confirmed once more in the recently published 2018 version of the International Chamber of Commerce Banking Commission’s trade register report.

The report analysed over US$12tn of exposures from 24 million transactions across six products and 25 banks worldwide. It found low default rates across all products and regions, averaging 0.37% for import letters of credit (LCs), 0.05% for export LCs, 0.76% for loans for import or export and 0.47% for performance guarantees. These figures have been declining since 2016.

The statistics reflect the “prioritised and strategic nature of this asset class”, says Peter Bartlett, partner at private investment advisory and management firm GML Capital. “Private capital deployed through a flexible, open ended investment vehicle can offer innovative and urgent solutions to meet the import and export financing needs in the region,” he adds.

Between them, local and international banks provide a drop in the ocean of financing that’s required to support Africa’s growing economies. For the majority of banks, the underlying trade infrastructure and political systems are too underdeveloped to fund anything but large commodities deals.

GTR takes a look at the vital work being done by four alternative financiers in Africa.


Christian Karam, director, Africa Trade Finance

Name of alternative financier/fund/asset management company

Africa Trade Finance SA


Size of investments into trade finance in Africa

We have launched our first programme for US$100mn.


Who are your investors?

We work with institutional investors such as insurance companies, development institutions and banks.


Where are you investing, how much, and according to what criteria?

Given that we do not have a presence in Africa, we tend to focus on transactions supported by large balance sheets. Our main focus is on banks across the continent, with a preference for the largest banks in each economy. Nevertheless, we tend to consider specific corporate risks when supported by an acceptable guarantor. We do not get involved in warehouse financing or any transactions that require the monitoring of assets.


Where are your biggest growth areas going forward?

In the past, we noticed that the most growth came from the largest economies, which were attracting most of the big investors. Today the situation has changed, as the larger economies are showing less growth, leading investors to diversify and refocus on smaller economies across the continent.


In your view, what is the role of non-bank investment in the context of Africa’s trade finance gap?

As international banks have derisked, we have seen the emergence of smaller trade finance actors trying to fill the gap they have left behind. The trade finance gap is widely discussed by many within the sector, and we believe that non-bank trade financiers have a long way to go if they do not benefit from the support of development institutions, through their trade programmes. Traditionally, development institutions tend to work with larger banks, but we are hearing more and more about their co-operation with non-bank institutions.


Giles Hedley, investor relations officer, Barak Fund Management

Name of alternative financier/fund/asset management company

Barak Fund Management Limited


Size of investments into trade finance in Africa



Who are your investors?

A diverse mix of institutional investors plus family offices, high-net-worth individuals, sovereign wealth funds and pension funds.

Historically these investors have come from Europe and the UK, however over the past two to three years this has broadened to include the Scandinavian countries, the Middle East, Asia, Africa and North America.

Barak’s investors form a knowledgeable base of qualified investors who are particularly familiar with the opportunities offered in the African alternative credit space.


Where are you investing, how much, and according to what criteria?

Barak has historically focused on the Sub-Saharan Africa region with its primary advisory and investment office in Johannesburg, South Africa, in which several skilled deal originators are located.

The opportunities have stemmed from South Africa itself, being a strong exporting region for Africa’s commodities, as well as key neighbouring countries such as Zambia, Botswana, Mozambique and Namibia. Barak also has a presence in key East and West African regions, with offices in Kenya, Ghana and Côte d’Ivoire.

This has enabled the company to focus on a broad footprint on the continent, as well as building up a team that has experience in a range of sectors, including mining, energy, agriculture and fast moving consumer goods. Barak’s criteria focuses on SME businesses unable to obtain traditional forms of financing, and the average investment size that continues to service this SME commodity trade finance gap for Barak is in the region of US$5-15mn.


Where are your biggest growth areas going forward?

South Africa continues to be a key hub for Barak, and this offers an export advantage with its strong ports as well as a focus on mining deals and agri.

However, with the opening of Barak’s offices in East and West Africa we have seen increased activity in countries such as Kenya, Ghana, Tanzania, Côte d’Ivoire and Nigeria. This has assisted in further reach to more northern countries, such as Egypt, where there is a strong investment mandate into energy.

Barak also sees heightened growth in impact investing across Africa. For many, social responsibility has become a critical principle of global investing, particularly in Africa, where the opportunities to make a tangible, action-oriented difference is so scalable. The more proactive practices of impact and community investing can provide benefits that purely philanthropic interventions cannot always reach. Top-down financing creates a natural chain reaction that empowers Africa to build up its own economy by stimulating demand.


In your view, what is the role of non-bank investment in the context of Africa’s trade finance gap?

Barak’s thesis towards SME businesses and helping them grow and prosper has fundamentally stemmed from providing these smaller businesses with access to alternative forms of capital that have traditionally been unable to be obtained by other forms of finance such as that provided by banks.

The primary reason is the security structure of Barak’s loans; whilst banks primarily take a view on the balance sheet and track record of a company before providing any loans, Barak will first and foremost take a view on the underlying transaction and look to take security over the commodity itself. In this way, these smaller businesses can obtain new contracts and opportunities despite being smaller and newer businesses. In doing so, they can continue to grow towards traditional financing with the help of these securitised loans that Barak is able to offer from the outset.


Peter Bartlett, partner, GML Capital

Name of alternative financier/fund/asset management company

GML Capital LLP


Size of investments into trade finance in Africa

GML has launched approximately 13 emerging market trade finance funds in the last 15 years which were typically themed to a region or sector.

GML and the Eastern and Southern African Trade and Development Bank (TDB) are currently in the process of launching the Eastern and Southern African Trade Fund (ESATF) which will invest in trade finance transactions in the TDB member states.


Who are your investors?

Investors have historically been large institutional, real-money investment managers and traditional commercial banks or affiliates thereof. We are seeing growing interest from some of the smaller and more specialised players such as the family offices and impact funds, but this is relatively modest by comparison.


Where are you investing, how much, and according to what criteria?

With respect to ESATF, it has been established in conformity with Article 9 of TDB’s charter, which provides for the establishment by TDB of a trade finance fund which will, amongst other things, develop and promote trade finance in and amongst the TDB member states, of which there are 22.

ESATF will initially focus on supporting primarily the small and medium-sized entities in the region and this is where the trade finance gap is most severe. Deal sizes will therefore be modest by global standards and range from between US$500,000 and US$5mn. The final
launch size is still to be finalised.

In terms of criteria:

  • For customer segment: SME/MME smaller producers, traders and manufacturers, specifically in the agri, mining, energy and industrials sectors. The focus is on those less banked, with deal sizes between US$0.5mn and US$5mn.
  • Product focus: Trade and working capital finance secured against the physical assets in the supply chain (borrowing base, inventory and receivables financing).

In alignment with the TDB charter, there is an impact and environmentally responsible philosophy.


Where are your biggest growth areas going forward?

We see the main opportunities in providing non-bank finance into the sustainable agricultural sector in the TDB member states. Impact investors are seeking valid and transparent investments where the sustainability of the underlying financing is capable of being independently validated and possibly even rated over time. We are already in discussions with third-party providers and servicers in this sustainability chain.


In your view, what is the role of non-bank investment in the context of Africa’s trade finance gap?

Banks are withdrawing or reducing their trade finance lending and deleveraging their balance sheets. Increasingly robust regulations on know your customer, sanctions and anti-money laundering have negatively impacted the banks’ proportion of capital, liquidity and resources which they dedicate to trade finance.

These stricter regulations were identified by banks in the 2016 ICC Global survey on trade finance as being “significant” or “very significant” impediments to the provision of trade finance. About one third admitted that the Basel III regulations had affected their cost of funds and trade finance liquidity.

The African Development Bank estimates that Africa currently experiences a US$100-120bn funding gap with banks financing only one third of Africa’s trade finance requirements.

No meaningful quantitative analysis is available but it is estimated that non-bank financing for trade finance is probably less than US$10bn globally. This suggests a significant opportunity for non-bank entrants in light of the challenges mentioned.

Trade finance is an attractive asset class for the fund. There is a consistent supply of and demand for trade finance in the Africa region across a variety of sectors and structures.

Trade finance tends to be short duration, modest volatility with consistent velocity on origination. Furthermore, it has a low correlation to mainstream asset classes and comparatively low default metrics.


Duncan Potts, senior associate, Challenger Management

Name of alternative financier/fund/asset management company

Challenger Trade Finance Segregated Portfolio


Size of investments into trade finance in Africa



Who are your investors?

Management, individuals, trusts, family offices, fund of funds and companies.


Where are you investing, how much, and according to what criteria?

Challenger is invested across nine African countries, spread across all regions of the continent.

Our major criterion is the liquidity of our investments. On a continent with well-documented rising debt levels, our loans are cash settled by all our clients. Our loan book has received an average of 21% per month back in cash repayments over the last year. Stock must move and our investment must be settled in cash. This proves the financial health of the company and ultimate saleability of the stock.

We also place an emphasis on operational control over the commodity as it moves through the lifecycle of the trade and managing the resultant cash flows from the trade. To this end, we have emphasised the importance of our operations staff, who are constantly tracking and monitoring the trade.

Having a large and experienced operations team relative to number of deals is instrumental to achieving our goal of de-risking our transactions. This ability to pre-empt and address any bottlenecks as the trade moves from supplier to customer remains our largest competitive advantage.


Where are your biggest growth areas going forward?

We are a global trade finance fund. In saying this we always acknowledge our inherent bias towards Africa given the extensive background and network of our directors and team in this area. We shall always look to retain this core part of our portfolio as the fund looks to diversify by gaining more exposure to South America and Asia. Challenger has recently hired a consultant in Buenos Aires to further explore opportunities on that continent.

Challenger has always had a strong link to tobacco, fast-moving consumer goods and certain other soft commodities. As the fund grows and new team members bring their own areas of expertise, we expect this weighting to reduce over time.


In your view, what is the role of non-bank investment in the context of Africa’s trade finance gap?

Challenger continues to see more and more ‘traditional banking’ opportunities. Africa remains reliant on global trade to either sustain an economy or its people. Traditional banks have lost the appetite for this trade purely out of a lack of physical resources and the introduction of insurmountable red tape. Non-bank investors can focus on the detail of individual borrowers and the specifics of their transactions. This allows us and others to effectively de-risk, or at the very least, mitigate the risk of perceived risky transactions. Non-bank investors will pierce the perceived risk frontier of African trade and will ultimately be replaced by traditional banks once we have cleared the weeds and fertilised the soil.