For years, cashew processors have been making individual efforts to access financing for capital investment, working capital and trade transactions. But despite their best efforts, the companies’ managers achieved little more than the realization that their businesses were not in the best of shapes. 

 

But a USAID Trade Hub initiative – combining the experience and knowledge of three financial service providers to work with companies across the region – has achieved some interesting success. 

 

As the U.S. fiscal year and contracts end, we are assessing the impacts they have had: What are the lessons and what challenges do subsequent contracts need to address?

 

One of the companies, AIMS Limited, initiated a cashew financing scheme in Nigeria, presenting three processors to potential financiers as a collective opportunity.

 

As Jide Anjorin, CEO of ACET, a cashew processor in Nigeria, puts it, “The bankers in the Trade Hub finance team know how to speak ‘bank talk.’” So how did the scheme help process access the much-needed financing? 

 

“The fact that the USAID Trade Hub was going to do hand-holding with consultancy services for financing and technical assistance for production impressed the banks,” said Judson Welsh, CEO of AIMS Limited. “The Trade Hub’s accompaniment lessened the risks of the banks. Also, because this was a group of processors, the banks understood that it was not a risk associated with one particular company. It is just the way the industry works.” 

 

Under the scheme, processors benefited from the restructuring of debt that is tied to their existing plant and equipment. 

 

“The restructuring gives us breathing space because the new annual interest rate is 7% compared to the 20% on the previous loan,” Anjorin said. “Also, the debt is spread over five years with a year moratorium. This is a much better situation than when our loans were ‘due yesterday’ as the bankers say.”

 

The only drawback is that the scheme does not allow for equipment financing. Two of the three processors participating in the scheme have received financing for debt restructuring, working capital and trade transactions, and the third is in the process of compiling the required documentation. 

 

“We need access to higher volume markets in order to process more significant requests,” said Stephanie Diakite of CATEK Group, one of the three financial service providers.

 

“Currently, the deals we have closing, have small impacts that the current framework does not capture,” Diakite said. “For instance we have facilitated restructuring worth in excess of (1 500 000 EURO) that is outside the scope of the current contract. This type of restructuring means that assets used to service debt become available for investment – its money in the bank for business growth.”

 

Visionary entrepreneurs run most of the client companies. Unfortunately, the entrepreneurial vision and zeal of these owners does not always translate into management capacity. 

 

“The companies get into financial hot water by using inappropriate types of financing for the various aspects of their operations,” Diakite said. “For instance, a manufacturer who takes an overdraft to purchase machinery will run into problems, the debt is too expensive and the repayment period is much, much short than the amortization of the purchased equipment.” 

 

 

According to Gale Smith, Partner at Serengeti capital, a lot of companies are not ready yet. They have scant financial records, or similar shortfalls, she said. 

 

“Investors did not want to take the risk,” Smith said.

 

In one case, an exporter’s business plan could not be submitted because the records were not there, she added. Other clients have the records.

 

“This is a great approach because clients will not even get a foot in the door without the intermediaries,” Smith said.

 

It is not clear that the entrepreneurs have learned from the process. More business development is needed.  Also, clients need to look local and take advantage of existing opportunities in-country. For instance, one company could sell on the local market but has not sought to. 

 

Winfred Osei Owusu, CEO of West Africa Market Links, had commenced initial discussions with UT Bank about financing cashew purchases for the season. 

 

“Normally the process takes a fortnight to a month before the bank gives you a term sheet,” he explained. “Serengeti expedited the process because they know the appropriate officers in the bank to deal with for our particular transaction. With their intervention, we received a term sheet in 48 hours.”

 

In this instance, the performance-based contracts have made transaction closing more effective. Osei Owusu received the financing in time to make the needed payments. 

 

“What we need is an agency agreement so that the company can look at our entire financing needs and assist us with solutions,” he said. “If we had gone in on our own, it would have taken longer.”

 

But that has not been definitive, he pointed out. 

 

“Even now, with the term sheet, we are still awaiting disbursement with this bank,” he said.

Nothing, as they say, is perfect. But the bottom line is persuasive: last quarter, the USAID Trade Hub reported more than $4 million in loans facilitated – which is more than the total facilitated for all of last fiscal year.