#63 Lending and Technology Opportunities in Trade and Supply Chain Finance

Very big markets but very easy to get it wrong. Winning in Trade and SCF needs deep insights into how Africa trades.

Illustrated by Mary Mogoi - Website

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Why Trade Finance Matters;

“The financial system of the past 200 years was designed for the industrial era and served only 20% of the population and organizations. As we enter the digital age, we must better serve the remaining 80%. Together with our like-minded partners, our vision is that consumers and businesses will no longer have to navigate inefficiencies to find capital, but rather, capital will be matched with consumers and businesses based on data-driven predictive technologies, which will enable every consumer and small business in the world to benefit from tailored financial services. - Ant Group Chairman Eric Jing”

Trade and supply chain finance is an area that should matter to Fintechs and banks, particularly bank ecosystem teams looking to embed financial services directly to their trading customers. It’s an area in which I have experience as both a banker and an operator trying to build solutions for the industry. It’s also a misunderstood area in which there’s a lot of wasted energy and resources. This energy and misunderstanding is best seen through the failed blockchain experiments of the last decade years where everyone was building a blockchain solution for trade. Of course, from the outside it makes tons of sense. For an industry that relies heavily on documents, blockchain should definitely help. This failed premise was encapsulated in the closure of TradeLens, a joint effort between Maersk and IBM. Trade and Supply Chain is very difficult and complex. Simplified tropes such as “we must digitise trade finance” often fall flat due to a failure to understand how goods actually move and what are the biggest problems to solve.

Financing trade matters because the TAM is big and the impact is even bigger given countries get wealthier the more they trade. This article is therefore an attempt to give investors, banks and operators some insights that should inform how they approach trade and supply chain finance solutions. It’s a general overview.

I’ll break it down as follows;

1. Quickly understand what trade finance is and the constraints in terms of Africa;

2. Mapping out how trade works in Africa viz the rest of the world;

3. How banks interact with trade finance

4. Based on this mapping out the opportunities and misconceptions in different segments of Trade and Supply Chain Finance;

5. Defining what it takes to win as a trade finance Fintech or ecosystem player;

Trade and Supply Chain Finance

Trade and supply chain finance address cashflow mismatches in business operations. Trade Finance focuses on international trade, bridging the gap between when exporters need funds to produce or ship goods and when importers can pay after selling the products. It not only provides financing but also acts as a risk mitigation tool, fostering trust between counterparties across borders.

Supply Chain Finance (SCF), on the other hand, tackles cashflow mismatches within supply chains, both domestic and international. SCF solutions, such as reverse factoring, invoice discounting, and payables finance, help suppliers manage delays in payments by filling funding gaps within the supply chain.

Understanding these concepts is crucial, but applying them effectively in Africa requires insight into how African supply chains operate. Like OmniRetail’s success from understanding the flow of goods and ecosystem dynamics, succeeding trade and supply chain finance in Africa depends on a nuanced understanding of how local trade functions.

How Africa Trades

To understand the drivers of Trade and Supply Chain Finance in Africa, it’s important to understand global trade in general. This concerns how goods move around the world and how finance is structured to support the flow of those goods.

Global trade is worth US$ 32 trillion dollars with the key players in global trade being the USA, European Union, China and India. Africa is a relatively small player with total trade being worth US$ 1.1 trillion, this includes both trade between African countries as well as trade with the rest of the world. What’s key to analyse is the composition of imports and exports and the resultant shaping of African supply chains.

Africa as a continent has a population of approximately 1.3 billion people. The economy is relatively small with a GDP per capita of US$ 1,645 which is 60x lower than that of the USA. Internet penetration is also significantly lower than developed areas such as the USA, Europe and China.

The high population as well as the relatively lower income levels have an impact on the nature of trade.

Trade composition varies across regions. The United States primarily imports vehicles, consumer goods, electronics, and crude oil, while Europe focuses on packaged medicines, vehicles, electronics, and consumer goods. Many of these imports come from China, the world’s manufacturing hub.

China, in turn, imports raw materials, intermediate goods, and integrated circuits to fuel its industries, which produce machinery, electronics, and consumer goods for global export. For example, China imports semiconductors to manufacture products like smartphones and telecom equipment, which are then exported to markets like the US for consumers to purchase.

In Africa, imports mainly consist of refined petroleum, food (e.g., wheat), and intermediate goods like steel, iron, and chemicals, which support local consumption and basic manufacturing rather than an export-driven industry. These imports are done by foreign multinational companies (e.g., Unilever, Lafarge) or local manufacturers (Indian or Indigenous).

African exports, however, focus on raw materials, intermediate goods, and crude petroleum, iron ore, platinum, coltan, and coffee, which feed into global supply chains. Unlike China, whose imports fuel its export market, Africa’s imports and exports serve distinct purposes, highlighting a fundamental difference in trade dynamics.

In essence, the low income levels as well as the lack of advanced manufacturing has created an import profile which is targeted for local consumption. The players in this trade are large manufacturers producing for the local market.

How African Supply Chains are Designed

Once goods are imported into the country, there are different considerations when it comes to getting the final product into the hands of consumers. The design of the local supply chain is then determined by various factors such as;

1. GDP per capita;

2. Level of retail infrastructure;

3. Level of e-commerce infrastructure;

4. Source of final products;

In the United States, high GDP per capita, strong internet penetration, and the importation of final consumer goods support a short supply chain. E-commerce platforms like Amazon and Shopify, along with offline retailers like Walmart and Target, sell goods directly to consumers. With consumers paying upfront and suppliers offering credit, retailers face minimal cash flow challenges.

The diagram above shows the difference between a US and typical African supply chain. Supply chains in the USA benefit from high purchasing power, well-structured retail infrastructure, and efficient data integration. This streamlined system results in shorter cash cycles with fewer intermediaries.

In contrast, African supply chains are fragmented and face infrastructural challenges. Goods—whether imported final or intermediate products—pass through multiple layers to reach consumers. These layers include:

• Wholesalers: Purchase large quantities from manufacturers and push products into the market.

• Distributors: Break bulk and handle last-mile distribution.

• Kiosks/Shops: Fragmented retailers sell to consumers, often in smaller, more affordable packages (a practice known as sachetization).

Both wholesalers and distributors typically operate on 30–60 day credit terms, adding complexity to the cash cycles.

How this affects the players is;

1. Large Manufacturers and Importers bear the brunt of financing the supply chain given that they need to use wholesalers and distributors to get their goods to the final consumer. These additional layers need to be given credit days meaning that manufacturers in Africa by and large have significantly longer cash conversion cycles i.e. the period from when a product is produced to when you get cash from the sale of that product. These can be anywhere between 90 days to 360 days on the higher end.

2. Where large manufacturers have pricing power or monopoly such as in the case of large breweries or multi-national consumer companies, the brunt of financing the supply chain falls squarely on their distributors who have to pay upfront whilst waiting for cash to trickle back up the supply chain;

3. The significant volume of food imports and very little advanced manufacturing means that most supply chains aren’t mature as defined by a good number of large manufacturers coupled with a significant number of well established medium sized suppliers;

Despite these issues, there’s over US$ 1.1 trillion in trade and a trade finance gap of US$ 120 billion according to various estimates. The challenge is in building products that work;

The Challenge with Bank Lending in Trade Finance

Whilst this is not an article about why banks are not lending in trade finance, as key players in the ecosystem, it’s impossible to ignore the role banks play. It’s important to understand the institutional imperatives that shape bank participation in Trade Finance in Africa.

1. Collateral Requirements: Collateral remains a major barrier, with over 40% of trade finance applications rejected due to insufficient collateral. This issue is widely acknowledged by organizations like IFC and AfDB, making it a binding constraint on access to trade finance.

2. Relationship Manager (RM) Incentives: Banks prioritize cross-selling a wide range of products over structuring complex trade finance deals. This misalignment often results in a mismatch between client needs and the products offered. RMs see each client as a buyer of a bouquet of products therefore the ROI on increasing the size of the bouquet is greater than the ROI on structuring a trade solution. Citi stands out by tailoring bespoke solutions for clients, reflecting their superior client coverage and expertise. I’m impressed by how thorough Citi are in their African trade business.

3. Trade Finance as a Secondary Function: Trade finance is treated as a support function rather than core, with limited expertise distributed across departments. For example, SME teams may rely on only a few trade specialists to support thousands of clients, leading to inadequate client service.

4. Limited Skills and Technology: Trade finance is not central to bank strategies, resulting in minimal investment in relevant technology and skills development. Few African bank CEOs have backgrounds in trade finance, highlighting its marginal role in leadership and decision-making.

An overview of the various opportunities;

There are many ways to categorise the different ways that Fintech companies can participate in trade finance. For me, I think there are two primary categories, you can either lend directly of course utilising some form of technology or you can provide a service through technology such as providing lending software. All these opportunities are shaped by the two main factors we’ve described, how Africa trades and how banks are set up to participate in trade.

Lending

Within lending, there are different categories. Although people may categorise the opportunities differently, for the purposes of this article, our categories are;

1. Trade Finance;

2. Supply Chain Finance;

3. Vendor or Kiosk Finance

Trade Finance

Trade Finance in Africa is a significant opportunity, of the US$ 1.2 trillion in trade that happens, only a third is financed by banks. Moreover, there’s an estimated US$ 100 billion trade finance gap. The numbers are big and the opportunity is real. It’s useful to break down trade finance based on whether one is financing imports or exports and the different opportunities therein;

Import Finance

Import finance supports the purchase of goods brought into Africa, primarily by large companies importing intermediate goods like plastics or final goods like food commodities. Payment methods between importers and overseas suppliers generally follow two methods:

1. Letters of Credit (LCs): A bank guarantees payment to the supplier by promising to pay once specific conditions are met, offering the supplier security.

2. Open Account: Growing in popularity, this arrangement allows suppliers to ship goods and receive payment later (e.g., 60 days after delivery). This method thrives on trust and improved communication between trade partners.

Import finance represents a significant opportunity in Africa due to the continent's status as a net importer. However, non-bank players face several challenges:

1. Letters of Credit (LCs): Sophisticated importers still require financiers capable of issuing LCs, even as open account terms dominate trade.

2. Comprehensive Financing Needs: Importers, especially manufacturers, need multiple financing solutions, such as long-term loans for capital expenditures alongside trade facilities. Banks excel here by offering integrated financing programs.

3. Debenture Constraints: Banks secure loans with all-asset debentures, granting them exclusive legal claims on manufacturers' assets in case of default. This exclusivity limits other financiers from providing additional funding, keeping manufacturers reliant on their primary bank. This is one of the biggest challenges to expanding financing solutions for existing manufacturers.

How to Win

It’s very difficult to compete with banks when it comes to established manufacturers due to the reasons given above. Building a new proposition in import finance requires you to play in two potential areas;

1. Focusing on emerging SMEs - These are SMEs that are excluded and don’t yet have facilities with banks. The big challenge here is managing all the risks associated with international trade. They keys to winning here are;

   1. Minimise risk by ensuring that the products being financed have an understandable market and that there are short cash cycles i.e. once the goods arrive, the borrower is able to sell them fast;

   2. Have end to end visibility of the goods as they move across the supply chain. Control of the goods is recommended. In Africa, most informal financiers of trade also double up as logistics players offering an end to end service. This is particularly the case in electronics, clothes and fast moving accessories;

2. Pre-Shipment Finance for companies supplying established corporations. Most large corporations in Africa order goods from pre-qualified suppliers and these suppliers are sometimes bucketed into ESG groups such as women, youth and people with disabilities. The challenge is that these groups neither have the financial or logistical capabilities to service these orders. Similarly to the previous point, there’s an opportunity to blend logistics fulfilment and financing to serve this market;

Export Finance

Export finance, like import finance, involves various payment methods, including letters of credit or open account transactions. Financing can occur at two stages: pre-shipment or post-shipment, with the latter being the primary focus for most financiers.

• Pre-shipment Finance: Provides exporters with funds for raw materials, production, and shipping before the buyer commits to payment. The key risk here is performance risk, where the exporter might fail to deliver the goods.

• Post-shipment Finance: Covers the exporter’s costs after the buyer has committed to payment. Financiers prefer this stage as it involves less risk, relying on the buyer’s confirmed obligation to pay.

For instance, in Ghana’s cashew nut trade, pre-shipment funding supports production, while post-shipment funding bridges the gap until the buyer pays.

How to Win

Winning depends on where you decide to participate;

1. In pre-shipment finance, there are two critical ingredients required to succeed;

   1. Domain expertise in the specific industry or good you’re financing enabling you to structure your financing adequately. For instance, if you’re financing cashew you should know about perishability, transportation conditions, shipping conditions etc and structure accordingly;

   2. The ability to have visibility and control either directly or through trusted partners. Banks do this through Collateral Managers and some Fintechs such as Jetstream and Frontedge do it themselves through their logistics business;

2. In post-shipment finance you need to understand the payment risk associated with a specific overseas buyer, the probability of those goods being rejected by the buyer and the ability to register a lien (claim) on the payment from the buyer. Some players here include Fluna who finance export invoices.

The challenge with post-shipment finance particularly non-bank lending is that it’s a crowded space and given that the only differentiator is cost then it will overtime become a race to the bottom. Moreover, there’s muted demand given that people need money much earlier. The biggest demand is in pre-shipment and that’s where you need to do the hard work to figure the market out.

Supply Chain Finance

Supply Chain Finance can also be looked at through the pre and post-shipment lens. Remember supply chain finance is more localised in nature and focused on optimising how supply chains work by injecting capital strategically to lubricate the movement of goods. IFC estimates put the size of the SCF Market in Nigeria at US$ 25 billion and in Kenya at around US$ 19 billion. It’s big but requires a lot of hard work to not only succeed but scale.

Pre-Shipment Finance

Within SCF, pre-shipment finance involves giving the suppliers of large corporates funding to enable them to fulfil specific orders. The main product under this is Purchase Order financing where a lender advances money to a supplier on the basis of a confirmed purchase order. IFC studies for both Uganda and Kenya show that this is the one area in SCF that has the most demand. The challenge with Purchase Order Finance is performance risk as with all forms of pre-shipment finance. However if you think through it intuitively, if you were given an order to supply laptops to SAB Miller in South Africa, when would you want money from a bank? Before you deliver or after? Intuitively, PO Finance having the highest demand makes the most sense. For Anchor corporates, solving this problem is also critical because it enables them to have more certainty about supplier performance, if you’re a procurement person you’re judged based on successful orders in addition to cost savings.

How to Win

Succeeding in Purchase Order (PO) Finance requires integrating physical delivery with financing, ensuring control and visibility over goods to mitigate performance risk. This involves validating purchase orders by connecting with corporate ERP systems and procurement teams.

Banks struggle to scale in this area because trade finance is not a core priority. With competing demands and easier revenue opportunities, banks often favor simpler products like long-term loans over the complex efforts needed for PO finance programs. This misalignment limits their capacity to address PO finance effectively. For sure, some banks are taking this seriously but my experience shows me that where Pre-shipment SCF is being done, it’s being done opportunistically on the basis of supporting the corporate anchor.

The only challenge in my view in addition to the performance risk is related to how supplier relationships are managed. Most corporate companies have come to optimise their supply chains so that they deal with only well capitalised suppliers. Part of the qualification of suppliers often involves supplier financial capacity either through analysis of cash flow statements or confirmation of bank facilities. The outcome of this is two-fold;

• Suppliers either have bank facilities such as overdrafts secured by collateral from their banks that enable them to fulfil their orders without LPO financing;

• Established suppliers when faced with the additional costs of PO financing choose to self finance their purchase orders.

Nonetheless, this does not obviate the need for PO financing as this unlocks new suppliers coming into the market which is a net benefit for the anchor corporates. Even well capitalised suppliers would benefit as they can now do more given PO finance is an injection of capital to the business.

Post-Shipment Finance

Post-shipment finance in Supply Chain Finance (SCF) provides financial solutions after goods are shipped, optimizing cash flow and working capital for buyers or suppliers. It includes:

1. Buyer-Led SCF: Initiated by buyers to support suppliers while extending their own payment terms. Examples:

   • Reverse Factoring: A financier pays the supplier promptly using the buyer's credit strength, with the buyer repaying later.

   • Dynamic Discounting: Buyers use excess liquidity to offer early payments to suppliers at a discount.

2. Supplier-Based SCF: Initiated by suppliers to accelerate cash flow by converting receivables into immediate funds. Examples:

   • Receivables Discounting: Suppliers sell invoices to financiers at a discount.

   • Factoring: Financiers purchase accounts receivable, with or without recourse.

   • Invoice Financing: Suppliers borrow against the value of outstanding invoices.

These are the most popular forms of SCF because there is no performance risk. Citi in Kenya for instance provides invoice discounting to Safaricom’s suppliers at zero cost as a means of getting a higher wallet share of Safaricom’s deposits. The challenge with post-shipment SCF is that given the lower risk involved, there's a significant supply of funding meaning that competition is based on price. It’s therefore very difficult to build a large Pan-African business on the basis of providing post-shipment SCF. From a client’s perspective, if I have invoices from a top tier corporate like MTN in Nigeria, what's the value of getting paid at a cost now vis-a-vis 30 days from now at no extra cost? The value prop can be flimsy especially for people dealing with tier 1 corporates.

Moreover, unlike Pre-Shipment Finance, this is not an injection of cash into my business so it doesn’t meaningfully affect my ability to take on more business. However, it does enable you to do more business in the sense that you can recycle your capital faster into other opportunities. The demand is real and there are plenty of interesting businesses focusing on this.

How to Win

Winning in this type of SCF requires a number of core capabilities;

1. Robust technology that can digitise the entire SCF workflow from invoice upload and verification to disbursement of cash. Documentation risk in SCF is severe and therefore automation is a real differentiator. Moreover, most anchor corporates demand that their banks have digital processes and systems. Again, this is an area that Citi has done well due to technology and most other banks are lagging behind. Remember, if trade is a support function and distributed through branches then it's difficult to not only build world class SCF technology, it’s also difficult to distribute it. Most banks therefore use the trade finance modules that exist within their Core Banking systems which are not optimised for SCF;

2. Strong anchor relationships matter because at the core of SCF is structuring products based on the needs of a corporate anchor. Relationships matter because you need to spend time with Corporate treasurers and leaders to not only understand their needs but also design these programs;

3. Competitive pricing - Remember, you’re not only selling to an anchor’s suppliers, you are also selling to the anchor. High finance costs are often a deal breaker.

Vendor Finance

Vendor Finance, though not strictly SCF, involves financing the last mile of goods distribution in Africa, particularly for kiosks. It is grouped with SCF due to its domestic focus. In Africa, kiosks operate on a cash basis, supplied by distributors who, in turn, are financed by manufacturers. This means the financing burden falls on distributors and manufacturers, not the kiosks, which often enjoy negative cash flow cycles—receiving payment before paying distributors.

Kiosk financing needs are situational, such as scaling inventory for new products or opportunities. While vendor finance appears promising for Fintechs, scaling it significantly is challenging, as many banks and Fintechs discover. The market is easy to enter and achieve quick wins, but long-term growth proves difficult.

How to Win

Having said that, small shops and retailers need financing but usually not SCF. They need working capital at specific periods or for specific products such as sugar which are cash businesses. I’ve written before that the keys to success here are having long-term operational data that enables you to truly know a business. Distributors have this knowledge by way of having a long-term relationship with them. For Fintechs, it’s a bit harder. You need to know not only that a certain retailer has the operational chops to succeed, but you also need to be able to know commercial intent. Omniretail in my view is well set up for this because they have full visibility across a retailer's business. Players like Safaricom have done well through M-Shwari and Fuliza which are general overdrafts and players like Moniepoint will also do well because ultimately if the demand for money isn’t specific then an overdraft will do.

The diagram above is a BCG type matrix showing where different opportunities lie when seen through both the volume of demand from borrowers and the number of competitors. Pre-shipment SCF for instance has high demand but few players showing its promise if a funder can figure out how to mitigate risk.

Tech Solutions

A number of companies have approached Trade and Supply Chain Finance from a technology perspective seeking to create solutions that enable the overall industry to work better. I’ll discuss some approaches and what I see as both advantages and drawbacks.

Trade and Supply Chain Finance Software

Companies like Prime Revenue, Taulia, Finverity, and Demica offer comprehensive supply chain finance (SCF) solutions, digitizing processes from lender onboarding to transaction processing. These platforms help banks set up SCF programs enabling better cashflow management for corporate anchors while boosting bank revenues. They are sold as standalone systems to Trade and SCF teams.

However, within African banks, the adoption of these solutions faces challenges due to the lack of expertise and strategic focus on SCF. Utilization often remains low. A potential path to success is for these companies to partner with non-bank SCF providers like Fiducia to build SCF programs from the ground up, collaborating with corporates and funders. Finverity's success with this approach in Dubai demonstrates its viability.

Trade Finance Digitisation

Companies like Bolero, essDocs, Komgo, and Contour are driving trade digitization through solutions such as digital document management, end-to-end trade platforms, and blockchain. Their goal is to streamline the complex documentation in global trade and trade finance. However, trade digitization faces significant challenges due to the involvement of multiple stakeholders, including port and tax authorities. Partial digitization fails to address these complexities fully, much like an inefficient hybrid email system requiring post office involvement.

In Africa, trade digitization is less critical for two key reasons:

1. Collateral Requirements: The primary obstacle in trade finance is banks’ collateral demands. If the underlying problem is market failure, tools that drive efficiency are “a nice to have” thus struggle to take off.

2. Human Resource Availability: There is ample manpower to handle existing processes, reducing the urgency for digitization. While this perspective may seem unconventional, it reflects the reality shaping decisions in the African trade landscape.

Lendtech and Alternative Data Solutions

Companies like Pezesha and Tausi.Africa in Africa, along with TradeLedger, Flowcast, and CRiskCo globally, provide alternative data and credit scoring solutions to improve lending decisions. Pezesha, for example, uses its own balance sheet to support these efforts. Success demands building robust models that allow banks and lenders to serve small vendors and micro-credit markets, which are otherwise too costly to reach through traditional methods.

However, banks in Africa typically focus on small ticket sizes, leading to challenges similar to vendor finance—requiring full visibility into a vendor’s operations, not just their financial data. While the space offers quick wins, achieving transformative outcomes requires deeper insights beyond mobile money and bank transactions, making it deceptively complex.

AI Driven Document Verification

Companies like TradDocs and Traydstream streamline the validation of trade finance documents, such as matching Bills of Lading to commercial invoices and packing lists. Their technology, trained on extensive trade data, helps identify fake documents or discrepancies, addressing a tedious and error-prone process.

However, these solutions lack indemnity—guaranteeing to cover losses if errors occur—since 100% accuracy cannot be assured. As a result, many African banks view these tools as non-essential "nice-to-haves." Bankers often report low adoption within trade teams despite implementation efforts.

Wrapping it Up

Trade and Supply Chain Finance are two areas that have significant promise. The promise is driven by;

1. An incredibly high TAM;

2. Very many viable starting points;

3. Little awareness due to a number of people not being involved in the trade of goods

The key is to understand how trade works and how bank trade departments are shaped. With such an understanding, it becomes easy to understand where the true opportunities lie. I think the big opportunity is in unlocking a scaleable pre-shipment finance model. In pre-shipment SCF, if you’ve built the tech then the key is in building SCF programs rather than just selling software.