Standard Chartered, a global banking leader in cross-border finance, and British International Investment (BII), the UK’s development finance institution and impact investor, have announced the renewal of a $350 million risk participation agreement. This strategic facility is designed to bolster the trade finance needs of small and medium-sized enterprises (SMEs) and larger corporations across Africa and South Asia, aiming to drive economic growth and strengthen resilience in these regions.

Background of the Partnership

Since its inception in 2013, the partnership between Standard Chartered and BII has been instrumental in supporting trade flows in frontier and emerging markets. Through this collaboration, the two institutions have enabled more than $10 billion in trade volumes across over ten countries, including key markets such as Kenya, Tanzania, Nigeria, Bangladesh, Pakistan, and Nepal. Within the past year alone, approximately $450 million in trade finance has been facilitated through this facility, underscoring its crucial role in fostering growth, especially amid global economic challenges.

The renewed facility not only broadens the reach across new and existing markets but also aims to provide essential support to sectors that are vital for sustainable development, such as food and agriculture, healthcare, infrastructure, electronics, technology, and mobility. By expanding access to liquidity and trade finance, this partnership intends to bridge the gap for businesses that face barriers to financing, thereby enhancing local economic resilience.

Addressing the Trade Finance Gap in Emerging Markets

The trade finance gap is a significant hurdle for emerging markets, with many SMEs struggling to access the financing needed to expand their operations or even to meet basic trade requirements. According to the Asian Development Bank (ADB), the global trade finance gap is estimated to be over $1.7 trillion, a figure that has only grown due to recent economic disruptions. Africa and South Asia, in particular, face persistent challenges in accessing affordable trade finance, limiting the potential of SMEs that are crucial drivers of employment and economic growth.

The renewed facility between Standard Chartered and BII addresses this gap by sharing the financial risk involved in trade finance. This enables more businesses to gain access to credit lines that would otherwise be challenging to secure due to perceived risk factors. Through this risk-sharing approach, the facility helps mitigate the financial barriers faced by companies operating in high-risk or underserved markets.

Aligning with the United Nations Sustainable Development Goals

The partnership also advances the United Nations Sustainable Development Goals (SDGs), aligning with key objectives such as:

• SDG 8: Decent Work and Economic Growth – By supporting SMEs and corporations, the facility fosters job creation, enhances income opportunities, and contributes to overall economic growth in underserved regions.
• SDG 9: Industry, Innovation, and Infrastructure – The financing facility enables investment in essential infrastructure and promotes industrialization, laying the groundwork for sustainable development.
• SDG 12: Responsible Consumption and Production – Through enhanced supply chains, the facility encourages sustainable production practices, helping to ensure that growth does not come at the expense of environmental health.

Anneliese Dodds, the UK’s Development Minister, highlighted the importance of the partnership, stating, “I am delighted to see BII and Standard Chartered renew their facility to deliver trade finance throughout Africa and South Asia. This is an important partnership that will support SMEs and corporates to grow and deliver critical goods and services. Trade plays an important role in economic transformation, and this risk-sharing facility demonstrates how BII can work with financial institutions to support our shared development objectives.”

Impact on Local Economies and SMEs

This trade finance facility is particularly impactful for SMEs, which often face steep financial barriers that hinder their ability to grow. In Africa alone, SMEs account for about 80% of employment and contribute significantly to the GDP, yet many lack access to sufficient financing. By providing trade finance support, this facility allows SMEs to better compete in both local and international markets, increasing their export potential and stimulating job creation.

In South Asia, SMEs also play a vital role, particularly in countries like Bangladesh and Pakistan where they contribute to sectors like textiles, manufacturing, and agriculture. The facility will help support these industries by offering financing that can ease cash flow constraints, allowing businesses to purchase raw materials, maintain inventory, and invest in growth.

Nick O’Donohoe, CEO of BII, emphasized the positive impact of the facility, noting, “We are proud of the positive impact that this long-standing trade finance facility with Standard Chartered has had in Africa and South Asia. By enabling over $10 billion in trade volumes, the facility continues to empower businesses and facilitate the vital flow of essential goods and services including food and healthcare. This is pivotal in supporting economic growth and creating new opportunities in these regions. It is also a step closer to narrowing the global trade finance gap.”

Expanding to High-Potential Sectors

The expanded facility will also address several high-growth sectors that are crucial for the regions’ economic futures. These include:

1. Food and Agriculture – Ensuring food security and agricultural productivity is essential for both Africa and South Asia. The facility will help finance agricultural inputs, machinery, and logistics, which can increase food production and support the livelihoods of millions in rural areas.
2. Healthcare – In light of recent global health challenges, investment in healthcare infrastructure and the supply of medical equipment has become a priority. The facility will support the import and export of essential healthcare products, improving access to medical supplies and equipment.
3. Infrastructure – Investments in infrastructure, such as transportation networks, energy, and communication systems, are foundational for economic development. Trade finance in this sector will enable projects that enhance connectivity and improve the business environment in these markets.
4. Technology and Telecommunications – Access to digital infrastructure is increasingly necessary for economic growth and integration into the global economy. By financing telecommunications and technology imports, the facility helps to bridge the digital divide, fostering digital transformation in these regions.

Saif Malik, CEO of Standard Chartered in the UK, highlighted the importance of this expansion, stating, “We are thrilled to renew our commitment to work with BII in support of trade. As a leading international banking group, we play a vital role in enhancing access to the capital and liquidity that is essential for global trade. This strategic agreement will provide significant support to businesses with high potential but constrained access to finance.”

Supporting Sustainable and Inclusive Development

The trade finance facility will have a broad impact on social and economic inclusivity by supporting businesses that employ a diverse workforce, particularly in markets where SMEs and family-owned businesses provide opportunities for women and young entrepreneurs. In Africa, for example, women-owned businesses account for nearly one-third of all SMEs, and trade finance accessibility can help bridge the gender gap in economic participation. Similarly, in South Asia, the facility’s financing could help empower rural entrepreneurs and small-scale enterprises, which are key to poverty reduction and community development.

Future Prospects and Continued Partnership

As the global economy evolves, partnerships such as this one between Standard Chartered and BII are likely to become increasingly important. The facility represents a sustainable approach to development finance, balancing profitability with social impact. By focusing on frontier and emerging markets, the partnership not only supports immediate trade needs but also sets the stage for long-term growth and resilience.

This facility renewal comes as both Africa and South Asia navigate complex economic landscapes marked by supply chain disruptions, inflation, and financial instability. The commitment from Standard Chartered and BII serves as a model for how private and public sectors can collaborate to address pressing financial gaps and foster inclusive economic growth.

Through the continued expansion of this trade finance facility, Standard Chartered and BII reaffirm their dedication to creating lasting impacts in some of the world’s most dynamic, yet underserved, markets. The future of this partnership is set to deepen economic connections and open new pathways for trade, contributing to a more interconnected and resilient global economy.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

5th November, 2024