NAIROBI, 18 February 2014 – At a press conference today John Gachora, Group Managing Director of NIC Bank and the African Trade Insurance Agency’s CEO, George Otieno, announced their unique partnership aimed at addressing the lending gap that exists most notably in the SME sector. Under the transaction, NIC Bank will be the first bank to take up ATI’s new insurance cover that will protect NIC’s entire portfolio of trade finance borrowers against the risks of insolvency and non-payment – risks that have traditionally inhibited most African banks from lending to SMEs.
“A need has arisen in the ordinary course of SME business where good trading business and credible contracts are won by performing companies but financial strength and/or credit access by the same companies is considered inadequate”, said Mr. John Gachora –Group Managing Director of NIC Bank.
The ATI product will help banks extend credit facilities such as short term loans, invoice discounting, bank guarantees and letters of credit without the requirement of the standard tangible securities as is the current practice by banks. This stands to have a positive impact particularly on the SME sector, which has historically been hindered from accessing working capital due to insufficient security.
In the past few years, international institutions have made efforts to provide solutions to mitigate the gap. Organisations such as the newly-formed African Guarantee Fund, are helping to encourage banks to support the sector but the main challenge is that demand tends to outstrip their resources. Last year approximately Ksh 1.6 trillion was loaned out to the private sector with only a nominal percentage of that figure going to the SME sector.
While banks recognise the potential opportunities this sector presents, many have found it difficult to capitalise on the SME opportunity because of the challenges in obtaining financial information from the stakeholders in the sector. The ATI product stands to impact the financial industry because it provides a mitigant against credit default risk, thereby opening up a window of opportunity for both the SMEs and the banks to benefit.
“Our approach to finding an effective solution started with idea that we wanted to help banks lend safely to as many clients as possible. We hope this product will continue to evolve to help them spread their financing to under-served populations, such as SMEs, with the objective of bringing them into the formal financial arena,” notes George Otieno, ATI’s Chief Executive Officer.
ATI also intends to tap into the growing demand by banks interested in expanding into the sub Saharan region, where risk diversification and portfolio management are essential criteria. The product is geared at helping banks get their risk houses in order, building a natural synergy for institutions in expansion mode.
Financial institutions continued to account for the majority of ATI’s client base in 2013. “The product was primarily created as a result of our clients disclosing to us their most pressing challenges,” added Mr. Otieno. “We anticipate that this will be a much sought after product in Kenya and in other markets where we operate simply because the opportunities for companies to trade in the region have opened up tremendously in the last few years – with this product, companies can now access bank financing that will help them achieve their expansion targets.”
ATI’s product, under the terms of the NIC Bank agreement, will have an aggregate limit of Ksh. 430 million (US$5 million) protecting NIC’s trade finance facilities comprised of short term loans, letters of credit, bank guarantees and invoice discounting.
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About NIC Bank
NIC was incorporated in Kenya on 29th September 1959, when Standard Bank Limited (“Standard”) and Mercantile Credit Company Limited (Mercantile) (both based in the United Kingdom), jointly formed the company. The company was amongst the first non-bank financial institutions to provide hire purchase and instalment credit finance facilities in Kenya.
NIC became a public company in 1971 and is currently quoted on the Nairobi Stock Exchange with over 25,000 shareholders. Barclays Bank of Kenya Limited acquired 51% of NIC’s total shares through the acquisition of Mercantile in the 1970s and Standard’s shareholding in NIC in the 1980s. Between 1993 and 1996, BBK divested its shares, selling 38% of its shares to the public in 1994, and the remaining 20% in 1996 to the First Chartered Securities Group (FCS).
Due to changing trends, regulatory requirements in the Kenyan banking industry, and the need to meet growing customer requirements, NIC obtained a commercial banking license in 1995. In order to effectively diversify into mainstream commercial banking, NIC Bank merged in November 1997 with African Mercantile Bank Limited (AMBank), which was then owned by FCS, by way of a share swap. The purpose of this merger was to allow NIC Bank to enhance its market position, provide a broader and more efficient range of services to its customers and increase the returns to shareholders.
About The African Trade Insurance Agency
ATI was founded in 2001 by African States to cover the trade and investment risks of companies doing business in Africa. ATI provides Political Risk, Surety Bonds, Trade Credit Insurance and Political Violence and Terrorism & Sabotage cover. As of 2013, ATI has supported over US$13 billion in trade and investments across Africa in sectors such as agribusiness, energy, exports, housing, infrastructure manufacturing, mining and telecommunications. ATI is the highest rated insurer in Africa with the 2013 renewal of its Long Term ‘A/Stable’ rating for Financial Strength and Counterparty Credit by S&P.www.ati-aca.org
www.ati-aca.org
Contacts:
NIC Bank: susan.mbula@nic-bank.com +254 20 288 8579, mobile +254 711 041 579
ATI: sherry.kennedy@ati-aca.org +254 719 014 209, mobile +254 714 606 787
