The USAID Hub issued a grant to development financier Financial Access Commerce and Trade Services - Kenya Ltd (FACTS), which specializes in providing short-term working capital to SMEs, agri-businesses and other commercial entities that have limited access to finance from mainstream financial Institutions. FACTS bridges the trade terms that exist between buyers and sellers using technologically-enabled Supply Chain Finance (SCF).
The Hub's grant to FACTS is aimed at increasing the volume of staples trade across the East African Community (EAC) by providing grain traders and those in allied services with access to short-term working capital. This presents an opportunity to pilot a cross-border invoice financing arrangement. The grant is performance-based and will support 20 small and medium-sized enterprises (SMEs) across Kenya, Uganda and Tanzania. The total loan portfolio is expected to reach USD 2 million, with an average facility of USD 100,000. The grant to FACTS is a risk share arrangement that is expected to expand the risk appetite of FACTS and other financial institutions to lend more to underserved sectors. It also forges a drive to new markets; as a result of this grant, FACTS is now willing to enter the Tanzanian market.
Intra-regional trade in Africa is the lowest globally, accounting for only 15% of the continent’s trade value. This is also true for grains and other food staples, which have limited movement from surplus to deficit areas. In addition to systemic issues such as logistics, standards harmonization and trade export bans, the biggest issue affecting cross border grain trade is the lack of working capital finance. Traders, millers and warehouses struggle with the documentation required to access the working capital from banks. Many do not have high-quality business plans, financial models, accounting records or evidence of corporate governance structures. Without this supporting documentation, even legitimately successful businesses cannot access financing.
Grain trade relies on purchasing large volumes from a surplus area, transporting the grain to a deficit area and on-selling to consumers or processors. Working capital financing is vital because at the point of purchase, the traders have to pay the suppliers cash for grain. However, they will only recoup the money after on-selling. This cycle can be as short as one week or as long as three months. Without working capital, the traders are limited to their available capital and can only purchase the equivalent volume of grain.
The grant will achieve its objectives through the following activities:
- Market Analysis of Short-term Working Capital in the East African Community (EAC).
- SME Profiling and Business Seminars.
- Working capital applications processing and screening.
- Business Development Support (BDS) to close deals.
This grant activity furthers the Hub’s project goal of increasing intra-regional and international trade that contributes to increased regional economic growth, resilience and integration. It will also contribute to the Hub’s intermediate objective of increasing regional value chain competitiveness and further contribute to the intermediate results of increasing intra-regional trade of staple foods to drive food security in the EAC.