Decentralized Financial Systems (DFS) are financial institutions that provide services to populations typically underserved by traditional financial institutions, such as commercial banks. These services include loans, savings, money transfers, and insurance. Their primary mission is to promote financial inclusion by offering services to populations that otherwise would not have access to formal financial services.
Thus, DFS plays a crucial role in economic development by providing access to credit for micro-entrepreneurs and small businesses, encouraging savings, and facilitating money transfers within communities. However, despite their positive impact, DFS in Africa faces significant challenges in terms of refinancing.
According to the World Bank, about 17% of adults in Sub-Saharan Africa had access to a formal bank account in 2011, although this figure has likely increased since then. Traditional funding sources can be limited, and DFS often face high-interest rates and stringent loan conditions. Interest rates for DFS loans in Africa can reach 30% per year, compared to about 9% for bank loans in developed countries, according to reports on microcredit and financial institutions in Africa.
This is why it is crucial to explore various strategies and solutions aimed at covering the refinancing of DFS in Africa. By identifying and implementing innovative approaches, the financial viability of these institutions can be strengthened. This will significantly support their growth for inclusive and sustainable economic development across the continent.
DFS in Africa face a series of complex challenges in terms of refinancing, hindering their ability to effectively fulfill their mission of providing inclusive financial services to underserved populations.
Among these challenges are:
To overcome these challenges, initiatives aimed at facilitating access to refinancing, reducing the costs of financial resources, and making exit rates more competitive are essential. These measures could boost the microcredit sector, promoting economic development and empowering local entrepreneurs in Africa.
In this context, ETC – Export Trading & Cooperation intervenes by proposing the Project Finance Bond (PFB) to overcome the aforementioned obstacles and facilitate the financing of microfinance institutions and other DFS operators.
ETC Export Trading Cooperation is a European institution specialized in providing technical and financial services for investment and international trade projects in Africa. It acts as a partner for businesses, banks, and institutions operating in the region to mitigate financial risks and support economic development.
ETC is a NOSU (Non-Supervised Entity active in financial industry), classified among NBFI (Non-Bank Financial Institutions), in accordance with SWIFT resolutions 202 and 209, and registered under BIC code ETCGIT2TXXX.
The institution is rated A3 (CSQ 2) by an ECAI (ModeFinance) in accordance with Regulation (EC) No. 1060/2009. For this reason, ETC’s rating can be used for regulatory purposes within the European Union in compliance with CRR II and by extension, all banking systems that have ratified the Basel principles.
ETC provides autonomous guarantees or counter-guarantees in the form of SBLC transmitted via interbank financial message Swift MT760 according to the rules of the International Chamber of Commerce. As such, the SBLC represents a direct claim on the Guarantor, it is irrevocable and unconditional.
The Project Finance Bond (PFB) is presented as an individual medium-long-term guarantee offered by ETC. Its objective is to enable banks and financial institutions to mitigate the default risk associated with loans and to weigh the exposure in the portfolio. It relies on the Stand-By Letter of Credit (SBLC), materialized by interbank financial Swift message MT760, compliant with the standards of the International Chamber of Commerce (ICC).
This solution generally targets banks and financial institutions engaged in project financing and the companies carrying these projects. By extension, the Project Finance Bond (PFB) provides a concrete solution to the mediumterm refinancing challenges of microcredit institutions in Africa.
Indeed, by offering banks a mechanism to cover the default risk associated with the refinancing of microcredit institutions, it alleviates their reluctance to support DFS. In summary, the Project Finance Bond emerges as an integrated and effective solution to overcome the refinancing obstacles of microcredit institutions in Africa, offering positive prospects for the sustainable development of the sector.
In summary, the solutions offered by ETC – Export Trading & Cooperation go beyond a simple guarantee by offering concrete and strategic benefits. They meet the refinancing needs of DFS, risk management, and strengthening financing capacities. These mechanisms provide a reliable source of liquidity to DFS, enabling them to support their daily operations and growth initiatives.
In conclusion, guarantees such as those proposed by ETC are essential to ensure the viability and growth of DFS in Africa. By adopting innovative strategies and exploring these different guarantee solutions, DFS can strengthen their financial resilience and continue to play a crucial role in financial inclusion and economic development of local communities.
