How friend-shoring can help close Africa’s trade finance gap

In a bid to close Africa's trade finance gap and boost trade prospects, the Director and Global Head, Trade Finance at AfreximBank, Gwen Mwaba, highlighted the importance of 'friend-shoring' as a strategic leverage. Friend-shoring, as she explains, involves the formation of alliances among African countries and banks to enhance competitiveness. This approach becomes crucial in light of the accelerated de-risking by international banks, leading to a withdrawal of financing capacity in Africa. Mwaba emphasized the necessity for African regional development banks, multinationals, and commercial banks to collaborate and pool their resources to address the continent's financing needs. With international banks reducing their exposure to Africa, it is imperative for African financial institutions to come together and bridge the financing gap that remains a significant challenge. AfreximBank, recognizing the need for innovative financing solutions, has developed a Supply Chain Finance Program to target underserved markets, particularly small and medium-sized enterprises (SMEs). Mwaba highlighted that a substantial portion of Africa's unfinanced trade, estimated between $80 to $100 billion, pertains to SMEs facing high rejection rates when seeking traditional financing. The Trade Finance Director explained that traditional lending methods are often inadequate for reaching SMEs directly. Therefore, AfreximBank turned to alternative financing mechanisms like supply chain finance. By leveraging tools such as Factoring and reverse factoring (payables finance), the bank aims to indirectly support SMEs and unlock their growth potential. Under the Factoring program, SMEs can obtain financing by selling their invoices to emerging factors across the continent, thereby improving cash flow and liquidity. On the other hand, the reverse factoring initiative benefits SMEs supplying goods or services to anchor buyers by enabling them to access immediate payment against their invoices. A crucial aspect of AfreximBank's strategy involves partnering with local banks to facilitate the deployment of the supply chain finance program. Mwaba outlined the collaborative model where AfreximBank provides foreign currency components, while local banks contribute local currency support. This approach ensures the program's scalability and effectiveness across various African markets. The Trade Finance Director announced that the commercial launch of AfreximBank's supply chain finance program in Nigeria is slated for November this year, in partnership with a local Nigerian bank. This launch signifies the beginning of a phased rollout across multiple African countries, with each market receiving tailored support and solutions to address their specific trade financing needs. Furthermore, Mwaba underscored Africa's growing importance in the global supply chain landscape, positioning the continent as the next big opportunity. By strategically expanding the supply chain finance program and fostering partnerships with local entities, AfreximBank aims to drive economic growth, support SME development, and enhance trade facilitation across Africa. As the continent navigates challenges posed by limited access to traditional financing, innovative initiatives like friend-shoring and supply chain finance emerge as critical enablers for narrowing the trade finance gap and unlocking Africa's economic potential.