EA is far from exploiting the potential of trade finance

By Zephania Ubwani

Arusha. The East African Community (EAC) bloc is miles away from harnessing the potential of trade finance to boost exports and boost intra-regional trade.

The financial instrument has not been used adequately for trade, which trade experts attribute to it not being “well understood by businesspeople” in the seven-nation bloc.

This emerged here on Thursday during a webinar on trade finance at the EAC organized by the East African Business Council (EABC), a regional apex body of private sector associations based here.

The growth of small and medium-sized enterprises (SMEs) has also been affected by the anomaly as they cannot access markets for their bespoke products.

EABC Chairman Nicholas Nesbitt insists the downside must be resolved through a collaborative effort between public and private credit insurers.

Ideally, trade finance means trade finance and relates to both domestic and international trade transactions, connecting sellers and buyers of goods and services.

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Various intermediaries such as banks and financial institutions can facilitate transactions by financing trade.

For the general public, however, trade finance manifests itself in the form of letters of credit (LC), guarantees or insurance, usually provided by intermediaries.

Mr. Nesbitt cited high interest rates, bureaucracy in delivery, high collateral requirements among the hurdles hindering the use of the tool to boost trade.

Others are limited trade finance instruments suitable for SMEs, lengthy approval process and insufficient capital among the hurdles companies face in managing the tool. Collaborative efforts should also be made in the adoption of appropriate technologies to mitigate risks and stimulate the adoption of trade finance by the private sector.

EAC Director of Trade, Rashid Kibowa, said improved competitiveness and digitalization of trade operations will boost the adoption of trade finance in the region.

Ms. Lightness Mlay, Head of Trade Finance Sales at KCB Tanzania, advocated for capacity building in trade finance for the private sector and relaxation of security regulations “to increase uptake of trade solutions” .

Dr. Caiphas Chekwoti, Head of the Trade Policy Training Center in Africa (Trapca), called for innovative and flexible trade finance solutions “that will further enhance the export competitiveness of the EAC.”

Ms. Waturi Matu, Senior Advisor on Private Sector Development in the EAC, rooted in collaborative efforts to develop innovative mobile money trade finance solutions for SMEs, citing export microcredit.

She urged EAC Partner States to develop an enabling legal framework for trade finance and modernize trade infrastructure such as warehouses and cold storage facilities.

Other interventions should include strengthening the competitive advantage of SMEs and eligibility for trade finance products which she said would boost the uptake of trade finance.

EABC Executive Director, Mr. John Bosco Kalisa said the regional trade body has rolled out the Mansa platform to improve access to trade information in partnership with Afreximbank.

He said Know Your Customer (KYC) data is important for companies to acquire trade finance and also transact across continental and international borders.

The webinar was organized by the EABC in partnership with the European Union – one of the bloc’s main development partners, funding cashless projects and programs in the region – through the Africa Rise window.

A senior official of the European economic bloc, Mr. Gonzales Jose-Luis, reiterated the support and partnership of the EU to improve trade and investment in the EAC region.