By: D E Wasake, FCCA, Principal at Inachee.com
Basic Information:

Target:

Importers,  corporate, wholesalers

Sector focus:

Trade

Amounts provided:

Varying

Funding type

Credit

Requirements
  • Bank account holder for 3 months
  • Active bank account
  • Security if the amount is above UGX 50m(Title deed or house)
  • Registered business
  • Proven record with the bank
  • Specialisation in a line of business

Further information

www.ug.equitybankgroup.com

Tel: +256 312 262 437, +256772 290 000


What is Trade finance?

Trade finance is a credit facility offered by banks or institutions on behalf of an applicant (e.g importer, wholesaler) to facilitate movement of goods from the supplier to the buyer. It can either be done locally e.g. between Sadolin paints and Seroma Limited or internationally (e.g an importer who needs a letter of credit or a letter of guarantee for a bid/tender) .  

It is estimated that 90% of the world trade relies on one or more trade finance instruments.

Equity Bank is therefore one of the institutions that provide trade finance.

Why Trade finance?

Trade finance serves as a source of working capital for individual traders and international companies in need of liquid assets. It also provides credit insurance against the risks involved in international trade e.g. political risks.

For companies that might not access loans, or have short term or specific needs it is a key source of financing.

·          A big number of entrepreneurs/companies rely on external capital to run their business; trade finance has proved to be more business friendly due to the low charges involved. Equity Bank charges only 3% of the total amount involved to issue a letter of credit or guarantee.


One of our clients for example needs bid security for million dollar tenders.  Previously, they would have needed to raise the money in cash as a guarantee for the tender. This was seriously impacting their working capital needs. When they approached a similar institution for a letter of guarantee, they got one, and the charges they pay are only a fraction of the guarantee amount. They are now able to apply for almost triple the tenders they used to apply for!

·         When acquiring goods for trade you might be faced with unexpected upfront expenditures and additional variable trade costs e.g. extra money for regulatory compliance, shipping costs and yet your finances are limited.

·         Orders may take longer to complete especially cross-border delivery increasing the need for working capital requirements.

·         In international trade, doubts may arise concerning the creditworthiness of the foreign counterpart. Trade finance instruments are a clear and simple way to evaluate who or whom you are doing business with.

What are the main products of trade finance?

Letter of credit: A promise /undertaking by the buyer/importer’s bank to the supplier/exporter to guarantee payments as stipulated in the purchase agreement.  The issuing bank states its commitment to pay the beneficiary (exporter) a given amount of money on behalf of the buyer (importer) as long as the seller complies with the terms and conditions of the contract.

This product allows the importer to use his cash flow for alternative purposes rather than for paying the exporter for a certain period of time. It also ensures that the exporter is paid in a timely manner.

Bank guarantee:  A promise/undertaking by the bank to the supplier /exporter whereby the bank agrees to make payment of the guaranteed amount in case the buyer/importer fails to meet his/her obligation.

Local Purchase Order (LPO) Financing: The bank avails finances to the client who are limited by cash flow but have orders.

Pre-shipment Financing: The bank can also provide bridging finance to exporters against an export letter of credit or confirmed order to enable the buyer meet the initial costs of raw materials, production, transport and logistics.

Post-import Financing: The bank off sets post imports payment obligations due on behalf of the buyer pending receipts of the sales proceeds.

Our tips to success

We believe that in order for you to start accessing trade finance you simply need to start maintaining proper books of account and comply with regulatory requirements (e.g paying taxes) as banks typically like to deal with a business that is complying regularly.

The next tip is to go over to your business manager (including Equity bank) and speak to them about your business needs, you will be surprised at what products they can offer you!