Programs under the Dual Recourse (DR) category are those in which the Bank lends to a corporate against the guarantee or aval of an acceptable bank or another creditworthy corporate. This category of programs helps the Bank to rely on the proximity of the local banks to the underlying borrowers in monitoring the loans that it makes, and therefore helps to mitigate the risks of lending to the new generation of exporters that have replaced the dismantled commodity boards, as well as to the broader emerging African private sector. It also helps in dealing with the impediments to extending financing to certain countries due to the problems posed by high documentary taxes and where the Bank’s special tax-exempt privileges do not apply by virtue of their being Non-Participating States. By using DR structures, the Bank extends recourse to all the parties in a deal mitigating the risk of possible impairment of other collateral it may have taken on such a deal.
1. Note Purchase Program
This is a program through which the Bank provides financing to corporates by the purchase of Promissory Notes or similar instruments issued by, or drawn on, them and accepted, avalized or guaranteed by an acceptable bank or other acceptable corporates. The purchase is done with recourse to the Issuer and Acceptor and/or Avalor.
There are two main kinds of such Notes, namely:
1.1 Credit-Linked Notes and Structured Notes
- Credit-Linked Notes are those in which the Bank purchases the Notes based solely on the credit of the Issuer and the Avalor.
- Structured Notes are those where the Bank essentially holds the avalized Notes or accepted debt instruments as security, since the source of repayment is separated from the Avalor and Note Issuer. This arises when the Note Issuer and/or the Avalor generate(s) receivable which may be assigned to the Bank. The Notes are redeemed from the receivables that flow into a usually charged Collection Account held with the Bank.
This program is used in financing a variety of transactions, including trade and services contracts (especially oil and mining services).
1.2 Direct Financing Program
Under the Direct Financing Program (DFP), the Bank provides pre- and post-export financing directly to corporates with a balance sheet size of at least US$2 million and an annual trade turnover of at least US$10 million.
2. Receivable Purchase Discounting Program
This program comprises of a family of facilities involving the purchase of specific receivables of goods and services to foreign or domestic buyers, with or without recourse to the seller or presenter. The facilities operated under this program are:
2.1 Forfaiting Facility
Forfaiting is the sale or purchase of a trade receivable on a without recourse basis. This facility is used by the Bank to support the purchase of essential imports, such as oil, food, and pharmaceuticals, on a short-term (180 days) basis, and over the medium-term, export generative or other essential items (e.g. telecom equipment). The Bank also uses it to assist African exporters in their shipment of capital and other goods to new markets. Using the Facility, the Bank assumes the payment and country risks of the import transactions enabling the importers in most cases to receive fixed rate credits.
Purpose:
The facility has the following objectives:
- To enable African exporters to offer credit terms to their buyers as their competitors do; and
- To facilitate the import of equipment, raw materials and essential goods into Africa on reasonable credit terms.
Beneficiaries:
- African Exporters of Eligible Items, offering credit terms to their buyers;
- Exporters of Eligible Items into Africa, including in the context of intra-African trade;
- Banks, forfaiting companies and similar institutions that originate and trade forfait papers.
Qualifying Transactions:
Sale and purchase of trade debt papers originated from Eligible Transactions. The papers can be bought and sold on a Straight Discount or on a Discount to Yield basis. To ensure Dual Recourse, the debt instruments will usually be required to be guaranteed (per aval) by an acceptable bank or corporate.
Tenor:
Between 6 months and 7 years, depending on the country of obligor. Maturities for different countries are provided in a document titled AFREXIMBANK Forfaiting published by the Bank and updated periodically.
Pricing:
Linked to the Libor and related to country risk, transaction risk and market conditions.
Eligible Instruments:
The Bank buys and sells the following debt instruments:
- Promissory Notes in international format;
- Accepted Drafts and Bills of Exchange drawn under Letters of Credit;
- Accepted Drafts and Bills of Exchange arising from trade done under Documentary Collections etc.; and
- Book debt arising from export of goods and services.
Forfaiting Process:
- Exporter or trader of forfait papers (the “Seller”) presents a transaction to Afreximbank for consideration providing information on the debt instrument, i.e., type, maturity, obligor, avalor etc;
- Afreximbank provides the Seller with a written commitment to purchase the debt on a without recourse basis;
- Commercial contract, invoices, evidence of shipment, Eِligible Instrument, signature verification, legal opinion (if required) are presented, duly endorsed or assigned to Afreximbank (where necessary);
- Afreximbank discounts the face value of the Eligible Instrument and the payment is made to the Seller; and
- At maturity documents are presented to the obligor at the counters of the Avalor who effects payment to Afreximbank.
2.2 Invoice / Receivable Discounting Facility
This is a facility whereby the Bank purchases or sells receivables with recourse to the presenter. Usually, the Bank requires that a local bank guarantees payment of the invoices. It is different from factoring in that all discounted receivables are self-liquidating, individual transactions in which the Bank does not assume collection services for the original beneficiary of the receivables.
Purpose:
To provide liquidity to traders and service companies pending the receipt of payment of invoices.
Beneficiaries:
- Oil and mining services contract holders;
- Small and Medium Enterprises (SMEs) supplying goods to large export trading companies, manufacturing exporters, hotels and related services; and
- Exporters of goods shipped on a consignment basis through sales agents and in supermarkets.
Tenor:
Maximum of 180 days.
Qualifying Instruments:
These include:
- Invoices accepted by buyers or users of services; and
- Book debt confirmed in writing as accepted by the buyers or users of the services.
Eligible Obligors:
- Oil Majors and major international oil Services providers operating in member countries of Afreximbank;
- Major buyers of African goods and services with good credit standing;
- Minor buyers of African goods, where the risk of such entities are credit insured, or covered through bank guarantees;
- National oil companies of member countries of Afreximbank; and
- Major mining companies and major international mining services providers in Africa.
Pricing:
Transactions under this Facility will normally attract fees and interest based on Afreximbank’s risk assessment and minimum return requirments.
2.3 Factoring and Receivables Management Facility
Factoring is a form of receivables financing whereby the seller of goods assigns its receivables to a “Factor” who performs at least two of the following functions on behalf of the seller, namely credit protection, prepayments against accounts receivable, collection of factored debts, credit management and sales ledger administration and analysis.
Through the Facility, the Bank promotes:
- Export factoring through which it supports short-term exports of African goods and services. Tenor of transactions will not normally exceed 180 days;
- Import (reverse) factoring whereby the Bank supports African importers of Eligible Items; and
- domestic factoring through which the Bank supports SMEs in the export/service supply chains.
Through export factoring, the Bank helps African exporters of non-traditional items to compete at near equal footing in world markets. This is because it enables such exporters to offer credit terms to importers instead of insisting on Letters of Credit, which is considered cumbersome and costly by importers. Reverse factoring also makes it easier for African importers to import goods without having to establish Letters of Credit. The Bank’s import factoring facility is provided in most cases on the back of debt instruments guaranteed by African banks to ensure dual recourse. Domestic factoring is used to support the integration of African SMEs into the export/service supply chains by providing them with finance against accepted invoices and helping them in sales ledger management. This is also backed by local banks. Through domestic factoring, the Bank promotes local (African) content in the usual enclave mining sectors of the African economy.
Purpose:
To provide liquidity and trade payment risk protection to beneficiaries.
Beneficiaries:
- Medium-sized African exporters in non-traditional export business, namely horticulture, manufacturing, handicraft etc.;
- African and non-African exporters of Eligible Items into Africa and in the context of intra-African trade;
- Companies providing services to the oil and mining sectors in Africa provided
that such companies achieved a minimum of 25% African value-added in the two years immediately preceding the application; and - Factoring companies providing factoring services covering Eligible Transactions.
Pricing:
Based on Afreximbank’s pricing model which takes account of the transaction risks and market practice.
Documentation:
- Factoring Agreement;
- Deed of Assignment;
- Legal Opinions, etc.
Affiliations:
The Bank is a member of the International Factors Group (IFG) and is guided in its factoring operations by the rules and regulations of the IFG as may from time to time be in force.
2.4 Joint Bill Discounting / Financing and Refinancing Facility
Under this Facility, the Bank shares the payment (commercial and sovereign) risks of an African bank or foreign bank through funded participation with international and African banks into trade payment instruments. Foreign bank risks are taken where the transaction involves African exports to non-African countries. Thus, Letters of Credit issued by an African or foreign bank or an accepted export bill guaranteed or avalised by an African or foreign bank, can be jointly discounted, purchased or financed by the Bank and other participating banks. For African deals originated by the Bank, this facility enhances the quality of the risk of the transaction given that the Bank has preferred creditor status in the countries where the facility is available thus reducing the risk of default. For those banks that would ordinarily assume these risks, the Bank’s participation would free lending lines for them enabling them to lend more to Africa. Under the refinancing and rediscounting aspect of the facility, the Bank can take over all the risks earlier assumed by the primary discounting bank. This is intended as an incentive to international banks who have assumed sovereign risk of African economies extending beyond 360 days, but want to exit at 360 days, for regulatory or other non-credit reasons.
African banks taking the credit risk of other African countries can also benefit from the facility. The additional advantage is that the participation of the Bank may help the exporter to obtain foreign currency, by reason of the Bank’s participation, in addition to local currency following the discounting exercise (from local banks). In economies where exporters are allowed to retain their export proceeds as is now generally the case in most of Africa, this is an added benefit.
Purpose:
- To encourage intra-African trade by enhancing the quality of African sovereign risks thereby encouraging greater business among African banks;
- To put African exporters at near equal footing with other exporters to Africa and elsewhere since the facility allows them to ship on deferred payment terms while providing them with the liquidity to continue the exporting process; and
- To facilitate the establishment of an active acceptances market in the continent.
Beneficiaries:
- Medium-sized African exporters in non-traditional export business, namely horticulture, manufactures etc.;
- Large African and non-African exporters, especially exporters of oil to African national oil companies; and
- African and non-African banks and Discount Houses assuming African risk under Eligible Transactions.
Tenor:
Tenor of individual transactions to be determined by the Participating Banks on a case-by-case basis and will depend on the assessed country risk.
Qualifying Instruments:
Accepted/Guaranteed Drafts or Letters of Credit.
Eligible Obligors:
African or foreign banks acceptable to Afreximbank. Such banks to meet the minimum conditions established by Afreximbank.
Discount Rate:
Linked to LIBOR but determined with the participating banks on a case-by-case basis using country specific prime rates established by Afreximbank and indicative rates for similar transactions in the country of residence of the obligors as a guide.
Documentation:
Funded Risk Participation Agreement into Accepted Drafts and Master Funded Risk Participation Agreement into Letters of Credit, as agreed by the participating banks.