Increased inward investment, business expansion and economic growth mean that Africa is poised for a transformation in the way that supply chains are financed. Liz Salecka investigates opportunities for banks to harness the continent’s supply chain finance potential.


With high annual economic growth rates of up to 7% a year in some countries, such as Nigeria, and huge scope for ongoing business expansion and trade, demand for sophisticated financing solutions is growing across the African continent.

This is particularly the case with supply chain finance as both foreign and domestic multinational corporations (MNCs), seeking extended payment terms, increasingly look to support smaller local suppliers with improved access to working capital.

“Supply chain finance is still in its infancy across the African continent but its potential for growth is very exciting,” says Stephen Meintjes, head of financial institution and trade transactional product and services at Standard Bank.

“Those countries that are experiencing the most rapid economic growth at present such as Ghana and Nigeria in the west; Kenya in the east; and Zambia more centrally is where the biggest potential for supply chain finance lies. South Africa itself is the biggest single market at the moment.”

Standard Chartered Bank estimates that the African supply chain finance market has been growing by 20 to 25% a year since 2010.

“The 2008 financial crisis was a pivotal period for supply chain finance in Africa,” says Philip Panaino, the bank’s regional head of transaction banking, Africa.

“The resultant credit squeeze and reduction in trade finance availability compelled financial managers to focus more on working capital optimisation, improved liquidity management and the diversification of funding sources.”

He explains that buyers in Africa are looking to take advantage of benefits that include extended payment terms, while suppliers are seeking out early payment and more favourable financing terms, based on the credit rating of large anchor buyers (suppliers). Supply chain finance is also providing suppliers with an alternative source of funding and can be used to eliminate exposures to buyers on their balance sheets.

“Banks are promoting supply chain finance by structuring solutions that provide non-recourse or off-balance sheet financing to companies,” Panaino adds. “These solutions are proving to be increasingly popular amongst the larger corporations in Africa.”

Growth drivers
The ongoing evolution of supply chain finance across Africa stems from a number of factors.

Michelle Knowles, head of supply chain finance product management at Barclays Africa, identifies three main drivers:

  • A greater focus on working capital optimisation;
  • The shift towards open account trade from documentary-based trade – this has enhanced the need to ensure sufficient liquidity and risk mitigation;
  • Social responsibility – corporates focusing more attention on supporting their strategic partners.


Treasurers of MNCs with a presence in Africa, which have already had experience with supply chain finance in the US and Europe, have played a key role in promoting its acceptance and adoption. Indigenous companies are now taking a lead from them.

Knowles points out that whereas global MNCs have been expanding rapidly to other parts of the region, indigenous large companies from growth countries such as Kenya and Nigeria are also expanding across borders. “They see supply chain finance as a way of helping them to achieve above-average growth,” she says.

“MNCs are driving supply chain finance but we are also seeing enquiries from mid-market companies now – whether on the buy or supply side,” adds Meintjes. “Smaller companies have a great desire to use it to gain faster access to cost-effective finance.”

Global banks are also playing their part in spearheading growth by making supply chain finance readily available to corporates right across the continent.

Standard Chartered Bank is now running “sizeable” programmes in key and growth markets such as South Africa, Nigeria, Ghana and Kenya.

Citi, meanwhile, is running programmes in East African countries that include Kenya, Uganda and Zambia and also launched one in Nigeria in 2014. The bank now has more than 10 programmes in South Africa.

“International banks and a few regional banks have been very visible in promoting the benefits of supply chain finance in Africa through their marketing efforts,” says Panaino, but notes: “This is not as much the case with local banks.”

Peter Crawley, head of trade and treasury solutions, Africa at Citi concurs, pointing out that the provision of supply chain finance is more the preserve of global banks than regional or local players because of the technological investment, reach and resources it requires.

“Many banks in Africa do see value in offering supply chain finance, but when you consider the US$100mn-plus investment required in a platform, the strong organisation and management capabilities required, and the need for on-the-ground resources to onboard suppliers, this is a hard model to copy,” he says.

However, Knowles explains that, although global banks do dominate in the provision of supply chain finance, regional banks are getting involved with smaller, bespoke transactions. “There is definitely a role that they can play in this space,” she says, noting that regional banks are focusing on providing solutions for their strategic clients.

Standard Bank is one indigenous bank that is positioning itself in this business.

“We aim to play a leading role in supply chain finance and are already offering it to selected large corporate clients in selected markets,” says Meintjes. “We are investing substantially in our capabilities as we see it as a product of the future.”

He explains that banks must continually manage their credit risk and supply chain finance is one of the products that enables this. Under Basel III, banks, amongst other requirements, are required to hold capital according to their financing books’ risk profiles. The better the risk profile, the lower the capital requirement.

The increased availability of sophisticated technology-based supply chain finance platforms is also helping to promote the adoption of supply chain finance.

“Solutions such as factoring and receivables finance have been around for decades but platform-based supply chain finance is now taking off,” says Crawley. “The use of technology [integration into the buyer’s accounts payable processes] eliminates paper handling and the potential for fraud and duplication, as well as systemically providing suppliers with the key advantages of supply chain finance.”

Panaino concurs, pointing out that supply chain finance take-up had, at one point, been hindered by the high workload and cost involved in on-boarding suppliers and buyers, as well as the largely paper-based financing associated with traditional programmes.

He believes that, in Africa, a supply chain finance solution should deliver capabilities in a secure and transparent way – but not impose massive IT development obligations on either the suppliers or buyers involved.

Standard Chartered Bank offers a number of different supply chain finance solutions in the region, including Vendor Prepay which, it claims, meets the needs of smaller SME suppliers by delivering instant financing with minimal onboarding, IT and documentation demands. The bank recently implemented the first such electronic supply chain solution in West Africa for one of the largest MNCs in the beverages industry.

Supply chain finance remains underdeveloped in Africa in comparison to other regions and there are still many challenges that need to be overcome.

While many treasurers now have a good awareness of it, this has not necessarily yet filtered through to the rest of their organisations.

“Instances abound where corporate treasurers and financial managers are disconnected from procurement, thereby undermining the success of any supply chain finance initiative,” says Panaino. “There is definitely a need for greater alignment and education on supply chain finance within the corporate market.”

There are also different legal and regulatory frameworks across Africa to contend with.

As Panaino explains, legislation around documents of title, withholding tax, and banks’ rights in respect of receivables purchased and perfection requirements can be obscure and “difficult to grapple with” in many jurisdictions.

Further challenges are posed by the accounting rules and standards in different countries where ambiguities can affect the legal determination that receivables sold to financiers by suppliers constitute “a true sale”.

“To overcome some of these hurdles, banks have to take the lead in articulating supply chain finance benefits and promoting alignment with regulators, clients and other stakeholders in the public and private sectors,” says Panaino.

Similar issues are impeding the growth prospects for cross-border supply chain finance programmes.

Crawley points out that most of the programmes rolled out are in-country – involving the provision of finance in the same currency to suppliers based in the same country as the buyer. “Cross-border programmes are more complex because if the need to onboard suppliers in different countries,” he says. “The exchange controls and FX regulations practised in different countries across the continent also don’t lend themselves well to automated platforms.”

“Many programmes targeting suppliers in Africa are presently domestic but cross-border programmes targeting local suppliers would definitely help boost exports,” adds Panaino, noting that his bank is keen to pursue such new opportunities.

New opportunities
While the roll-out of programmes for suppliers continues to gather momentum across Africa, other types of supply chain finance solutions are also being sought.

There is growing demand for a range of working capital solutions spanning receivables finance, distributor finance and structured trade and commodity finance.

“Demand for receivables finance is coming from large corporates, suppliers and distributors and this is being offered on both a recourse and non-recourse basis,” says Mike Brandon, senior product manager, supply chain finance at Barclays Africa, explaining that for smaller suppliers, working with buyers that have not set up programmes, this represents a viable and cost-effective financing alternative.

The main areas of interest are supplier and distributor financing solutions, while pre-shipment finance is also becoming more relevant.

“Distributor finance is being sought by large supply-side companies experiencing strong growth. They see this as a way of enabling distributors to sell more so that they can meet demand and grow their business,” says Crawley.

Similarly, Panaino notes that many companies are interested in solutions such as pre-shipment finance, but adds: “The challenge with pre-shipment finance is that the product has to be carefully structured to mitigate performance risk, and only a few banks are adept at providing such structured solutions.

“While interest is there, credit availability is limited and the credit quality of the company can make all the difference.”