INTERNSHIP REPORT

A STUDY OF THE AFRICAN TRADE FINANCE

ECOSYSTEM
A report submitted in partial fulfilment of the requirements for the Award of Diploma of

Postgraduate in Management

In
International Business

by

SHIVANI SINGH
Roll No. 21IB333

Under Supervision of
Ms. DAITRI TIWARY

(Duration: 1st May 2022 to 31st June 2022)

BIMTECH (An Autonomous Institute)

Approved by AICTE, Accredited by NBA (AICTE) & NAAC (UGC),
Plot Number 5, Knowledge Park 2, NCR, Greater Noida, Uttar Pradesh- 201306

1
 Date: Month/Date/Year

TO WHOMSOEVER IT MAY CONCERN

SUB: TRAINING CERTIFICATE

We hereby certify that ________________________, a Full Time Student of Post Graduate

Diploma In Management (IB,IBM, RM) Course, 2020-2022, of Birla Institute of
Management Technology (BIMTECH) has undergone his/her Summer Internship in partial
fulfilment for the completion of his/her above course for a period of 08/10 weeks starting
from______________________.

The title of her project is “___________________________________”. The project is carried

out under the guidance of Ms. __________________________,
Designation_________________, Jista Financials

We found her to be a dedicated and diligent student. We take this opportunity to wish her
every success in her future endeavours.

Sincerely,

Ms. _______________________
Designation _____________________
Location________________________

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 Summer Project Certificate

This is to certify that Ms. Shivani Singh, Roll No. 21IB333, a student of PGDM IB, has
worked on a summer project titled IB “A study of the African trade finance ecosystem” at
“Jista Financials” after Trimester-III in partial fulfilment of the requirement for the Post
Graduate Diploma in Management programme. This is her original work to the best of my
knowledge.

Date: ___________ Signature___________

BIMTECH SEAL Name of Faculty Mentor

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 Letter of Transmittal

Mr. (Industry Guide Name),

Office Address
Dear Sir/Madam,

Re: Summer Project Report

Attached herewith is a copy of my summer-project report “A study of the African trade

finance ecosystem” which I am submitting in order to mark the completion of my 10-week
summer project at their organization. This report was prepared by me using the best of
practices and summarizes the work performed on the project and is being submitted in partial
fulfilment of the requirements for award of diploma.

I would like to mention that the overall experience with the organization was very good and
helped me to know how work is carried out in real practice with the help of their esteemed
organization. I feel honoured that I got an opportunity to work with Jista Financials, a
company of great repute.

I hope I did justice to the project and added some value to the organization.

their suggestions/comments would be appreciated.

theirs truly,
Shivani Singh

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 Letter of Authorization

I, Shivani Singh, a student at Birla Institute of Management Technology (BIMTECH),

hereby declare that I have worked on a project titled “_A study of the African trade finance
ecosystem” during my summer internship at “Jista Financials” in partial fulfilment of the
requirement for the Post Graduate Diploma in Management programme.

I guarantee/underwrite my research work to be authentic and original to the best of my

knowledge in all respects of the process carried out during the project tenure.

My learning experience at Jista Financials, under the guidance of Mrs. Nafeesa Ali, Business
Development-Head and Ms. Daitri Tiwary, Research Scholar has been truly enriching.

Date: Month, Date, Year _____________

Shivani Singh

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 ACKNOWLEDGEMENT

I would like to gratefully acknowledge the contribution of all the people who took an active
part and provided valuable support to me during this project. To begin with, I would like to
offer my sincere thanks to Mr. Vishal Bhambhani & Ms. Tejal Doshi (Director and Co-
Founder) for giving me the opportunity to do my summer training at “Jista Financial
Services Pvt. Ltd”. Secondly to my Industry mentor, Ms. Nafeesa Ali without their
guidance, support and valuable suggestions during the research, the project would not have
been accomplished.

My heartfelt gratitude also goes to the entire “Trade Finance” team at the Jista
Financials, for their co-operation and willingness to answer all my queries and provide
valuable assistance.

I also sincerely thank “Ms. Daitri Tiwary”, my faculty mentor at BIMTECH, who provided
valuable suggestions, shared her rich corporate experience, and helped me script the exact
requisites.

Last, but not least, I would like to thank all Dealers/Customers/company etc. (whichever is
applicable) for sharing their experience and giving their valuable time to me during my
project.
Name: Shivani Singh
Roll No.: 21IB333

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Table of contents Page No.

1. Acknowledgement……………………..………………………………………06
2. Executive Summary………………..………………………………………….11
3. Chapter-1 About the Company…....……………………………………...12-15
3.1 Company Overview…..………………………………………………….13
3.2 Business segment………………………………………………...………13
3.3 Clients……………………………………………………………………14
3.4 Profile………………………………………………………………….…15

4. Industry Overview…………………………………………………………….…16

5. Chapter-2 Literature Review ………………...…………………………………18

6. Chapter-3 About the Study……………………………………………………...20

6.1 Introduction of trade finance……………………………………………21

6.2 Trade finance Instrument ………………………………………………22

6.3 Problems and Scope ……………………………………………………23

7. Chapter- 4 Methodology for the study …………………………………………24

8. Chapter- 5 Analysis……...…………………………………………………..25-46

8.1 CASE 1- XYZ PAYMENTS ……………………………………………25-32

8.1.1 Background of the project……………………………………………26

8.1.2 Financial Projection……………..……………………………………27

8.1.3 Analysis ………………………………………………………………33

8.2 CASE 2 – EPZ Textile Ltd………………………………………….…33-36

8.2.1 Background of the project……………………………………………34

8.2.2 Flow of the transaction…………………………………… …………35

8.2.3 Documents required………………………………………………….36

8.3 CASE 3 – OPAL ……………………….………………………………37-41

8.3.1 Background of the Project…………………………………………….37

8.3.2 Financial Advisory…………………………………………………….38

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 8.3.3 Analysis………………………………………………………………………41

8.4 CASE 4- LEASED INSTRUMENT…...……………………………………….42

8.4.1 Background of the Project………………………………………………….44

8.4.2 Types of Swift Messages…………………………………..……………… 45

8.4.3 clauses used in message…………………………………………………….46

9. Conclusion……………...………………………………………….…………......48

10. Chapter-6 Contribution and Learning……………...……………….….……49-50

11. Chapter-7 References……………………………………………………………51

12. Annexure…………………………………………………………………………52

Plagiarism Report

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Table of Figures

Fig.1 Steps involved in the Process of Letter of Credit…………...…………..….……...…..22

Fig.2 Incoterm…………………………………………………….………….…..…….…….23
Fig.3 Assumptions.…………….…………………………………………………..…………27

Fig.4 Revenue Projection……...………………………………………………….….………27

Fig.5 Net Earnings Projection…………………….……………….………….……...………28

Fig.6 Cash flow Statement………………………………………....………………...………29

Fig.7 Balance sheet ……………………………………………….…………….….………..30

Fig.8 Company comparable …………………………...………………………….…………30

Fig.9 DCF Model valuation ……………………………………………………….…..…….31

Fig.10 Calculation of Equity…………………………………………………………………32

Fig.11 Calculation of WACC ……………………………...………………………………...32

Fig.12 EV Revenue ………………………………………………………………………….34

Fig.13 Present revenue of EPZ textile……………………………………………………….34

Fig.14 Cashflow projection for 12 months from January 2022 to December 2022 ………34

Fig.15 Current year report-OPAL …………………………………………………………..38

Fig.16 forecast income statement……………………………………………………………39

Fig.17 Balance sheet ………………………………………………………………………...39

Fig.18 Cash flow statement …………………………………………………………….……40

Fig.19 Verbiage …………………………………………….…………………………..……42

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Glossary

ADBI Asian Development Bank Institute

AfDB African Development Bank

AFCFTA African Continental Free Trade Area

AFREXIMBANK African Export Import Bank

AFTRAF African Export Import Bank Trade Facilitation Program

EPC Engineering Procurement Construction

DFI Development Finance Institution GDP Gross Domestic Product

ICC International Chamber of Commerce

IFC International Finance Corporation

KYC Know Your Customer

LC Letter of Credit

BG Bank Guarantee

MTN Medium Term Note

SBLC Standby letter of credit

NPLs Non-Performing Loans

SMEs Small and Medium-Size Enterprises

SWIFT Society for Worldwide Interbank Financial Telecommunication

TFF Trade Finance Fund

TFI Trade Finance Initiative

TFP Trade Finance Program

AGF – Africa Guarantee Fund

WTO World Trade Organization

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 EXECUTIVE SUMMARY

Jista financials Ltd. does debt syndication for prospects based in Africa and India through
their extensive network of lenders spread across majorly in Africa. The recent economic
slowdown is making the need for sound trade finance policies and strong financial systems
more acute. Many companies are trying to preserve cash by delaying payment and the
number of SMEs in emerging Asian economies with high credit risk is growing. The
financial capacities for funding the infrastructure projects are available in these markets
across all sectors – a renewable, mining, industrial, water (treatment, distribution), healthcare,
real estate, agriculture, infrastructure, etc. Following the role of a consultant, evaluated
various business ventures from a variety of financial perspectives in order to provide finance
through a rated financial institution.

The findings related to the financing requirement by businesses in countries like South Africa
create the base objective for this report. Analysing a business plan and creating financial
projections and forecasting of the company in order to raise funds using credit lines and trade
financing instruments. A detailed study of the clauses and terms used in a trade finance
transaction is incorporated in this project.

The report also includes a financial model prepared for a fintech start-up based in Kenya. The
background of the project and the work behind the extensive model preparation is discussed
in detail.

The Swift codes and the significance of the clauses used in a transaction are discussed in one
of the cases in this report. The Verbiage created during the process has several clauses, and it
is crucial for a person participating to finish it to understand what each clause means.

This report talks extensively about several projects all ultimately aiming to provide trade
financing solutions employing various credit lines according to the needs of the company.

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 CHAPTER 1

Introduction

1.1 Company Overview

Jista Financial Services Pvt. Ltd. is a global financial advisory company based in India,
with an associate office in Canada. With more than 30 years of combined experience, the
promoters & associates specialize in executing debt advisory assignments across the
globe. It is an Investment Banking firm with a primary focus on debt syndication in
African, Indian, and Canadian Markets. Global coverage with 200+ Banks, DFIs,
Insurance Companies, and other FIs, making us geography agnostic. Detailed sectoral
knowledge with expertise to fulfil clients’ business requirements across any sector. The
promoters have the dedication & passion of a young and dynamic team to exceed clients’
holistic business expectations.

1.2 Business Segments

Venture Corporate Supply chain

TRADE FINANCE
DEBT ADVISORY
PRIVATE EQUITY

Capital Finance financing

Project
PE & Growth FInance
Capital Finance receivables
Export

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1.3 Profile
A. Debt advisory

The team includes seasoned debt advisors with in-depth market knowledge and topic
expertise, and together with their vast network of contacts with banks, financial institutions,
and other sponsors, they can strategically analyse the best capital structures and funding
options.

Services Offered:

 Syndication of Rupee Debt - Term Loans, Working Capital

 Syndication of Foreign Currency Loan - ECB / ECA route with special
focus on the African markets
 Export Finance
 Acquisition Financing - Indian Companies Buying Overseas Companies
 Project Finance - Green and Brown Field
 Corporate Finance
 Trade Finance - Buyers Credit and Suppliers Credit, Structured Trade
 Secured Loans
 Mezzanine Funding
 Asset-Backed funding

B. Trade Finance
For commercial trades in manufacturing, oil & gas, soft and hard commodities, and trade
financing options are provided. The business wants to offer financing options for every step
of the supply chain. Both public and private organizations are among their clients.

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 By using technical descriptions, they help their customers obtain the goods they are
looking for. 
 Selection of suppliers from their wide range of international suppliers/exporters for
all commodities. 
 Advisory on structuring the financing and introduction of financial partners
Bundling all supplies through one supplier, reducing the need for multiple contracts 

C. Receivables financing 

 Through their network of local & international financing institutions, we arrange for
funding the client against the invoices 
 The payment by the buyer of these invoices is then assigned to the financial
institution.

D. Project finance

they undertake services such as:

 Conducting the bank feasibility study.
 Finding the EPC contractors for the clients and potential lenders, also doing their
analysis.
 Additionally. the company undertakes the structuring of the debt and pitches the projects
to various investors.
 It also helps in the preparation of the project documents involved.
 Negotiating with the banks to finance at reduced borrowing costs.

Apart from the above-stated services, the company also deals in:

 Raising equity for the businesses by approaching investors and undertaking services such
as preparing the information memorandum and financial model, doing the due diligence,
etc,
 Assisting companies in obtaining venture financing by contacting banking institutions.
In trade finance, the business establishes connections between clients and suppliers and
contacts businesses that agree to complete supply contracts. By signing fewer contracts,
the business lessens its workload.

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2. Overview of the Industry
2.1 Introduction: Trade finance

The financing of international trade flows, which serves as a middleman between importers
and exporters to reduce transactional risks and improve working capital efficiency in
organisations, is known as trade finance. It deals with tasks associated with funding both
domestic and foreign trade.
In the simplest terms, an exporter expects an importer to advance payment for shipping
products. Naturally, the importer wants to minimise risk, therefore they ask the exporter to
provide proof that the items have been sent. The importer's bank helps by giving the exporter
(or the exporter's bank) a letter of credit that guarantees payment upon presentation of
specific documents, such as a bill of lading. Based on the export contract, the exporter's bank
may grant the exporter a loan. The process's chosen document depends on the nature of the
transaction and how performance evidence might be presented (i.e., bill of lading to show
shipment). The fact that banks only deal with paperwork and not the actual goods, services,
or performances to which the documents may be related is important to keep in mind. In a
developing country like South Africa, only those with assets to pledge as security can own
any asset. The World Bank estimates that small firms worldwide, particularly in Africa, face
a $5.2 trillion financing deficit. As the number of start-ups in the African continent is
growing, they are looking for opportunities in the Sub-Saharan market and seeking financing
through the international market and credit lines.

2.2 Global Scenario of Trade Finance

The global trade finance market size was valued at $44,098 million in 2020 and it is projected
to reach $90,212 million by 2030, registering a CAGR of 7.4% from 2021 to 2030. 

The wide range of actors in the global trade finance ecosystem contributes to its
distinctiveness. Companies of all sizes make up the system's buyers and suppliers. However,
the majority are MSMEs, which make up over 95% of businesses and 60–70% of all jobs
globally and are the foundation of all economies.

Financial institutions are among the other participants. They offer the liquidity and risk
analysis required to execute trade transactions, as well as a wide range of services supporting
an expanding list of trade participants' adjacent requirements. Institutional investors, export
credit organisations, and credit insurance firms have prospects for expanded participation in

15
this market, even though corporate banks continue to have a strong role. There are other
financing options, including buyer- and supplier-led schemes.

2.3 Key Market Segments

 By Product Type
o Commercial Letters of Credit (LCs)
o Standby Letters of Credit (SBLCs)
o Guarantees
o others
 By Provider
o Banks
o Trade Finance Houses
o Others
 By Application
o Domestic
o International
 By End User
o Traders
o Importers
o Exporters

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 CHAPTER-2

Literature Review

The barriers, except for political difficulties, are unique to intra-African commerce because
they have no bearing on trade between Africa and wealthy nations. (Robert Longo, Khalid
Sekkat,2004)

Intra-African exports are found to disproportionately increase with road infrastructure, trade
agreements, and declining trade costs. (Olney, 2022).

 Short-term debt and trade credit are complements, while cash holdings are substitutes for
short-term debt and trade credit. (Machokoto, Michael, Nyasha, Makate, Marshall ,2022)

The global financial crisis has constrained trade finance for exporters and importers in
developing countries. SMEs were particularly affected, and export diversification has become
difficult, especially in low-income countries. Malouche, Mariem, (2009) Decreasing
availability of trade credit will undermine export performance in sub-Saharan Africa
Humphrey, (John 2009) This paper looks at the role of external trade and foreign equity
finance in determining the impact of exchange rate uncertainty on firm-level employment
growth (Dhasmana, Anubha 2021) This article examines the role of institutional structures in
the relationship between trade openness and financial development in sub-Saharan
economies.

The literature review talks about the need for a strong financial Institute to enhance the
economy and trade prospects in the nation. ( Avsar, Veysel, Gollu, Gultekin, Sevinc, Nurgul
2022) Abeka, Mac Junior, Gatsi, (John Gartchie 2022) This report investigates the effect of
the antidumping policy on the payment methods in trade transactions. Literature review
findings suggest that exporters offer better financing options when they face competitive
pressure in their export destinations because of discriminatory trade policy.

(Abeka, Mac Junior, Gatsi, John Gartchie 2022) Abstract This study empirically identifies the
impact of financial development, particularly exports, on trade in services. Three proxies
used for measuring financial development are financial systems deposits, liquid liabilities,
and private credit. After conducting statistical tests and robustness checks, we show that
financial development has a positive impact on trade in services in Central and South

17
America but does not have a significant impact in Asia and Africa. (Jiang, Yushi Khan,
Muhammad Irfan 2021)

Banks can facilitate a more comprehensive understanding of the supply chain among buyers
and suppliers, enhancing integration and maximising working capital. The research proposes
a process model of physical/financial supply chain financing that, in a novel way,
acknowledges the function of banks in assisting buyers and suppliers to enhance the
efficiency and effectiveness of trade finance transactions. Silvestro, R. and Lustrato,
P. (2014) It is expected that intra-African expansion by fintech firms will accelerate as
venture capital investment into the African fintech industry rises (Hammerschlag, Z., Bick,
G., & Luiz, J. M. 2020).

The technology's inherent qualities also make it a potentially intriguing instrument for
assisting with the WTO Trade Facilitation Agreement's (TFA) implementation and
streamlining business-to-government (B2G) and government-to-government (G2G)
operations at the national level. The use of technology and smart contracts could make border
controls and national single windows—a single point of entry where trade stakeholders can
submit paperwork and other information to finish customs procedures—more effective,
transparent, and secure. It could also increase the precision of trade data. (WTO Publications
World Trade Organization)

The times of crisis, the availability and cost of trade finance appear to have had little effect on
commerce. Due to an increase in spreads during the crisis, the cost of borrowing had a
detrimental effect on commerce in general. This suggests that for some traders, funding was
probably too expensive, significantly limiting their ability to trade. The lack of trustworthy
quantitative data, which is one of the main challenges for policymakers in the domain of trade
finance, is highlighted in this study. Korinek, J., J. Le Cocguic and P. Sourdin (2010)

The article analyses the initiatives taken by various parties, primarily multilateral financial
organisations, regional development banks, and export credit agencies, to increase trade
financing flows for developing nations in order to aid in their integration into the global
economy. The WTO's mission is to facilitate trade as an organisation dedicated to the fair
expansion of global trade. (Dorotea López, Felipe Muñoz ,2021)

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Foreign exchange (FX) risks are a worry for trade finance consultants, although employing
effective FX risk management is favourably correlated with export volume. Consider that one
key subsidiary-specific advantage to be the ability to use internal and external debts as trade
finance to promote export intensity. (Uyen T.K. Nguyen, Paloma Almodóvar,2018) New
information on export insurance and guarantees leads one to believe that publically sponsored
export credit agencies have helped keep the trade finance markets from completely drying up
during the present financial crisis. Given that export credit agencies are primarily found in
developed and emerging economies, the question of whether developing nations without
access to these institutions should create their own institutions to help exporting businesses
and prevent trade finance shortages during crises emerges. In deciding whether to create such
specialised financial institutions, several concerns that should be taken into consideration are
highlighted in this study. (Kim Tùng Đào, Peter A.G. van Bergeijk, 2016)

19
 CHAPTER-3

About the Study

Trade Finance in Arica

One of the most significant drivers promoting economic expansion in Africa is trade. Africa
is still unable to completely benefit from trade's growth-promoting advantages. Africa's
proportion of international trade has consistently declined over the same period, from 4.4
percent to 3 percent, despite its population having more than tripled over the past five
decades to represent about 17 percent of the worldwide population. In addition, compared to
other continents, Africa's trade is characterized by little intraregional activity. Although the
limitations brought on by infrastructure deficiencies, tariffs, non-tariff obstacles, and supply-
side restraints are well known, the growth of both intra- and extra-African trade has also been
constrained.

Characterization of Trade Finance in Africa

Financial institutions support trade through a variety of trade finance products, some of which
concentrate primarily on risk reduction and others on the real financing needs posed by cash
flow gaps in the underlying trade. According to the stage of the trade cycle that participants
may be in, the products needed are often determined.

Typically categorized in these two broad areas: Funded and unfunded trade finance assets
Unfunded Trade Finance products are centred on credit enhancement/support; therefore, the
involved provider does not supply liquidity to the trade counterparts but instead supports the
transaction by ensuring the parties' performance in their various tasks. Funded Trade Finance
Products are concentrated on a financial institution's provision of funding or liquidity to the
parties involved in the trade transaction.

It is in the best interests of both Buyers and Sellers in a trade transaction to exert as much
control as they can over the transfer of title to the underlying goods and, obviously, over the
payment profits related to those items.

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As a result, trade finance instruments that emphasize risk reduction assist in resolving the
parties' divergent needs accelerating the payment from the importer is in the exporter's best
interests when it comes to reducing the payment risk from the importer. On the importer's
end, the goal is to lessen the exporter's supply/performance risk so that it can obtain the items
before making a payment. In these situations, trade finance products effectively serve as a
method by which providers absorb the trade-related risks (primarily payment and supply-
related issues), with the possibility to additionally give the exporter expedited receivables and
the importer extended credit.

Trade Finance Instrument

Letter of Credit- A bank will issue you a letter of credit. A well-known and popular
trade finance tool is a letter of credit. It strengthens the protection provided by
international trade.
Several letters of credit are available, depending on whether they are needed for
private or professional reasons.

Type of Letter of Credit:            

 Revocable/ Irrevocable Letter of Credit — • Whether a letter of credit is

irreversible or revocable depends on the buyer's and issuing bank's ability to alter and
update it without the seller's approval. According to UCP 600, all Letters of Credit are
irrevocable. In this way, revocable letters of credit are becoming less and less
common. The seller, the buyer, and the issuing bank must all agree to any contract
changes or amendments.
 Confirmed/Unconfirmed Letter of Credit — The letter of credit is deemed
confirmed when a second bank certifies that it will accept a complying presentation
upon the request of the issuing bank. A conforming presentation is a collection of
documents that conforms with the letter of credit's requirements and all applicable
rules.
 Deferred / Usance Letter of Credit — A credit that is not paid or assigned
immediately after the presentation, but instead after an indicated period that is
accepted by both buyer and seller.

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 Standby Letters of Credit – The contract is termed a standby agreement as the bank
is only required to pay in the worst-case scenario. A standby letter of credit assures a
seller of payment, but the terms of the arrangement must be strictly adhered to. The
bank has the discretion to decline to make the payment if, for instance, there were a
shipping delay.

Fig. 1 Steps involved in the Process of Letter of Credit

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The practise of funding an invoice, which is a tradeable asset with a tangible value, is
becoming more and more common in trade finance. This allows a manufacturer to receive
working capital to support the manufacturing and shipment of items that will not be paid for
30 to 90 days.

The transfer of risk for the items between the seller and the buyer, however, must occur
before an invoice can be funded. Choosing Incoterms that advance the transfer of ownership
to the buyer as soon as possible is crucial if a seller wishes to maximize the period of
funding.

Fig. 2 Incoterms

Following Incoterms for trade financing is an industry norm thus It is crucial to emphasize
that the successful completion of a trade order depends on more than just selecting the best
Incoterms; it also depends on a carefully designed contract that meets the needs of both the
buyer and the seller.

23
 CHAPTER-4

Research Methodology

This research is an extensive multiple case study research. This study is based on qualitative
material and therefore secondary sources. This includes scientific articles, case studies, and
other literature. To find out the low-risk, high-collateral end of the credit spectrum where
trade finance is located for different projects.

The method employed is a multiple-case study, which summarises individual cases in order
to draw conclusions that apply to other cases and create a cross-case report containing data
from several examples in order to provide generalizable results and construct theories that
reduced trade finance has the potential to cause a great deal of harm to the real economy
(IMF 2003). International supply chain agreements have both industry and trade finance.
Trade now depends heavily on sophisticated supply-chain financing operations, particularly
those for small and medium-sized businesses. The research objective has been to analyze the
shortcomings and similarities involved in this case study.

Each project includes the computation and analysis behind it to meet the desired goals of the
project. Meanwhile, the report describes every element related trade financing transaction.
The case study approach allows in-depth, multi-faceted explorations of complex structures
and processes used in different trade finance transactions

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 CHAPTER-5

ANALYSIS

CASE 1- XYZ PAYMENTS LIMITED

Background of the company:

XYZ PAYMENTS LIMITED is a Kenyan fintech start-up that offers 360-degree digital
financial services through its infrastructure to serve both individuals and businesses, these
services cuts across Utility Bill Payments, Payment Collections, and Disbursements to/from
Mobile Wallets and Bank Accounts

 Chatbot mobile platform- A Normal user can access their Mobile Application,
available at the Google Play store.
 Agency Network Platform- Micro-retailers / MSMEs become agents of change in the
drive for financial inclusion. Micro retailers using their platform can become last-mile
agents for financial services and diversify their earnings ability through commissions.
 API gateway- Through their one account powerful API, businesses can access Utility
Vending, Payment collection, and disbursements to/from Mobile Wallets, Banks. For
the first time, XYZ PAYMENTS LIMITED offers open APIs that allow real-time
disbursement of Funds to all 42 banks in Kenya.

XYZ PAYMENTS LIMITED makes money through these strategies.

1. Commissions-Based Through various Partnerships with various Utility Firms, we take a

percentage of all transactions processed.

2. Transactional Charges While making a P2P money transfer transaction and Cash In/ Cash
Out, a transactional charge is deducted depending on the volume

Numbers

11,000+ downloads

25+ API Merchants

25% Monthly Growth rate

25
350,000+ unique Customers Served

40m+ worth of processed transactions

Market Analysis

In Kenya, 56% of the total population performs at least 70% of their transactions through the
handheld cash option due to the high charges that they will incur whilst accessing the same
services through Online/Payment systems. This gives XYZ Payments a unique selling point
to offer its services to both Businesses (SMEs, Large Enterprises) & Individuals to digitize
their day-to-day transactions in a cheap, fast and efficient way. SMEs/Micro-Retailers &
Large Enterprises can generate additional income by earning transactional commissions from
reselling formal financial services and providing mobile money services to low-income
people in their communities. However, they also access Payment collection & disbursement
to/from Mobile Wallets, Banks. These services can be accessed through their Agency
Platform, Handheld PDQs, and through API integration to the Business’ pre-existing system.

For the Pre-Seed funding round, XYZ Payments are looking for financing to raise Ksh.
110,000,000 (around USD 1 Mn)

Working:

Further, I have added the working of the projected valuation of the company in order to get
the funding.
For doing the valuation of this company DCF model was used.

26
Fig. 3 Assumptions

Fig.4 Revenue Projection

27
Fig. 5 Net Earnings Projection

Fig. 6 Cash flow Statement

28
 Fig.7 Balance sheet

Fig.8 Company comparable

29
 Fig.9 DCF Model of valuation

Fig.10 Calculation of Equity

30
Fig.11 calculation of WACC

31
 Fig12. EV Revenue

Observation:

Credit poses issues in the world of financial inclusion because of the dangers of excessive
debt. This is a concern in places like Kenya, where there is a profusion of different apps for
online credit and there is evidence that this credit is being utilized for counterproductive
activities like online gambling. However, we should not let this obscure the fact that if
economic progress is to keep up with population expansion, Africa needs a lot more financial
aid.

There are very few or say near to zero companies in Fintech sectors that were listed on the
Nairobi Securities Exchange (NSE) is a leading African Exchange, based in Kenya – one of
the fastest-growing economies in Sub-Saharan Africa.

The expansion of African FinTech businesses' services across the continent is the result of
increased investment. Particularly in sub-Saharan Africa, which has historically experienced
poor access to financial services, the potential is great.

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Case 2- EPZ Textile

Company Brief

With over 4 years of market presence, project Shona is a thriving garments and apparel
stitching firm based in Nairobi, Kenya that is growing its market share, profitability, and
strategic regional presence. In a highly competitive market, project Shona has seen its service
demand go up by over 800% in its other years since inception with a shifting global strategy
to their African manufacturers due to uncertainty driven by the impact of COVID 19. Shona
has a strong leadership team, led by a CEO who has been in this segment throughout his
professional career spanning 17 years of intricate hands-on exposure. The firm has over 600
employees who form the back born of quality stitching, speed to market, and collaborative
sourcing. While Shona is morphing into a giant in the marketplace it is well-positioned to
seek new responsible sources of capital that will allow it to capture a few of the projects in
front of it in the United States and Europe.

About the Textile Industry

The textile and apparel sector has been growing for the last 22 years since Kenya joined
AGOA. The average growth of the Kenyan economy for the last 5 years is ~5%-7%. The
industry has grown steadily above-average economic growth and is a major foreign currency
earner as it supplies mostly international clients. Growth for the next 5 years is approximately
9% in line with the global shift.

Major Clients

Financial Performance (Ksh)

• Strong financial performer

• CAGR - Rev 95%: 2021 EBITDA $800K: PAT 300%

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• Shifting global textile and apparel model – from China to Africa

Fig.13 Present revenue of EPZ textile

Fig. 14 Cashflow projection for 12 months from January 2022 to December 2022

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TRANSACTION BRIEF:

• Facility: Revolver -Line of Credit USD

• Amount: $1,500,000 – $8,000,000

• Uses: Raw Material Purchases

• Pricing: LIBOR + 650bps

• Security: Client LCs

• Tenor: 4 years

Pre-shipment financing is a loan given by a financial company to a seller of goods or

services for the acquisition, production, or transformation of raw materials or semi-finished
products into finished goods and/or services, which are then supplied to a customer.

EPZ textile required a pre-shipment finance instrument to fulfil the order and s it needed cash
for the manufacturing process. Along with the seller's capacity to carry out the terms of the
buyer's contract, a purchase order from a reliable buyer, a documentary or standby letter of
credit, or a bank payment obligation, issued on the buyer's behalf in ffavorof the seller, is
frequently a crucial component in motivating the financing.

Flow of the transaction

1. Bank approves the facility and EPZ Textile Ltd fulfils approval conditions as stipulated in
the facility letter.
2. Borrower receives export LC from buyers as transferred from buyer’s agent.
3. Borrower enters into agreements with suppliers for purchase of raw material with
payment terms being documents against acceptance, payment under the shipments shall
be upon receipt and inspection at borrowers’ premises. 
4. The supplier ships goods and submits documents for collection. 
5. Banks receive original shipping documents and against acceptance deliver the documents
to the borrower for clearing.

35
6. Upon receipt of goods at borrower premises, the borrower inspects the goods and issues a
goods acceptance certificate in conjunction with the buyer’s representative.
7. On the collection maturity date, the Borrower requests the bank to book a short-term loan
and pay the supplier invoice by providing the following.
a. Letter signed by authorized signatories quoting the collection reference and requesting
the bank to book a short-term loan for a maximum period of 90 days and pay the
documentary collections.
b. Import Declaration Form (IDF) for Imports.
c. Acceptance goods certificate signed by EPZ textile Ltd buyer’s representative.
8. The bank reviews the loan request against approved terms.
9. On approval, the Bank books a short-term loan and credits the Borrower’s account
and effects payment as per documentary collections instructions.
10. On the PIF maturity date, the Borrower’s current account is debited with the
outstanding loan amount, and the transaction is deemed complete.
11. The facility may be used in a revolving manner subject to satisfactory utilization. 

Trade cycle

Transaction Type Days

Receipt of Master LC  Every 30 days
Issuance of Baby LC  Within 7 days of receipt of Master LC
Goods shipped as per Baby LC and cleared through  30-45 days
customs.
Transportation to Borrower premises for stitching  7 days
Conversion to finished garments  30 days
Preparation of export documents and lodging of  7 days
documents against Master LC
Receipt of export proceeds (as per Master LC terms)   30 days

Risk associated with pre shipment financing:

As repayment is reliant on the seller's performance capacity and reputation, performance risk
for the seller is the main risk. The main risks are the buyer's ability and willingness to pay
when the products are delivered, as well as the seller's ability to fulfil in accordance with the
terms of the purchase agreement.

CASE STUDY-3 ORBITS PRODUCTS AFRICA LIMITED

36
Project: forecast and financial projection

Founded in 1972, Orbit started as a trading company and then in 1991 backward integrated
and diversified into a toll manufacturing company servicing the FMCG and CPG
multinationals. Orbit is an innovative company working on constant improvement and
expansion of facilities to reduce costs, and improve systems, processes, and quality to provide
the benefit and satisfaction of the customer. Orbit’s value-adding principles are competitive
pricing, top-notch quality, reliability, and sustainability. Orbit’s mission is to be an
independent world-class vertically integrated, outsourced manufacturing offering, with a
diversity of key customers focused on the personal and home care sector. Orbit’s main
manufacturing divisions are bleach and toilet cleaners, powdered detergents, plastics,
sulphonation plant, soap, liquid and paste detergents, sanitizers, trading, agrochemicals and
building products. Orbit is currently operating in Kenya but looking to expand manufacturing
in the African region.

TRADING DIVISIONS:

1. Industrial Chemicals

2. Fertilizers.

MANUFACTURING DIVISIONS:

1. Soap and Detergent

2. Sulphonation

3. Plastic packaging

4. Agrochemicals

OPAL had a funding requirement for restructuring its existing facilities

1. $5.0 m Letter of Credit / Post Import Finance ◦ To support the 2022 business plan, incl.
supply chain disruptions and restoring credit lines

2. $7.0m Term Loan ◦ Term Loan I: $3.0m - Roll-over of residual OCIL balance to OPAL
◦ Term Loan II: $3.0m - To settle historical over-due accrued creditors - Term Loan II: $1.0m
- Capex facility to finance debottlenecking of existing, high demand production lines (Hypo
plant; plastic packaging) - Proposed terms 7-year term: 2-year principal moratorium; 5-year
amortization

37
3. $1.0 m Invoice Discounting Line -To support the 2022 business plan, incl. supply chain
disruptions and restoring credit lines

4. $1.0 m Over-Draft Facility - Temporary working capital OD

Total Funding Request: $14.0m ◦ $9.0m on balance sheet ◦ $5.0m off-balance-sheet

Current year Analysis

2022 revenue growth is seen across the divisions by:

a) delivering an additional volume of existing SKUs made from working capital availability.

b) A 24% price increase applied to the orders received in 2021

c) increase in sulphonation to Unilever and a new customer

Fig. 15 Current year report-OPAL

97% of revenue growth is seen in different divisions.

38
FORECAST INCOME STATEMENT

Fig.16 forecast income statement

 Gross margins are projected to expand primarily in 2021 and 2022 from reduced fixed
costs relative to a greater volume, improved supply chain management and procurement
with better purchasing from importation, cash purchases, and increased in-sourcing of
packaging materials.
 Further GP margin improvement not factored, in when comparing with industry best
practice of c. 40%

39
 Fig.17 Balance sheet

 The total assets are expected to be KES 5 billion by 2026

 Fixed assets are expected to grow yearly based on the additional capital expenditure
OPAL will be required to make for the additional facility Additional funding through
short-term loans and long terms from Commercial Paper and NCBA will ensure the
availability of enough working capital.

CASH FLOW

Fig.18 Cash flow statement

40
  The cash balance at the end of 2026 grows to KES 576m
 Cash from operations grows to KES 857m by 202

Analysis

Historical financial performance vs forecast OPAL projected revenues KES, Billions

OPAL’s 2022
 This forecast is based on volume growth once working capital is available and the
price increased, leading to annual revenues of KES 2.9b, which the business has
exceeded in orders received in prior years (at old prices)
 2022 revenue growth is seen across the divisions by:
a) Delivering additional volume of existing SKUs made from working capital
availability.
b) A 24% price increase applied to the orders received in 2021 and
c) Increase in sulphonation to Unilever and a new customer
 Tight working capital led to focus on servicing priority customers based on long
relationships, profitability, cash outlay, payment record, and future growth prospects
 Once sufficient working capital is raised in 2022, the company will target a broader
range of customers, like other market leaders.
 FY21 performance remained challenged due primarily by liquidity constraints amidst
difficult trading conditions ensuing due to Covid-19 restrictions and supply chain
disruptions, with volume spikes linked to the availability of working capital
associated
with commercial paper and customer advances.

41
CASE 3 - LEASED INSTRUMENT

Fig.19 Verbiage

42
43
44
7.4.1 Background of the Case-

This message transaction is between KING MABATI and the Commercial Bank of China
regarding the issue of LC. Kings Mabati provides a variety of roofing solutions for
residential, commercial, industrial, governmental, and rural constructions, playing a
significant part in Kenya's construction industry. The company had a modest beginning, but it
aspires to rank among the top businesses in Kenya and East Africa in terms of earning money
and bringing in money. Additionally, it plans to enter the market for building supplies
including barbed wire, chain links, nails, and such items. As a reputable, dependable, and
highly skilled roofing manufacturer in Kenya, they constantly put forth great effort to provide
our customers with precisely what they want at a very reasonable cost. This business has a lot
of promise, and with the right resources, it might supply high-quality steel products to the
local market.

There are several swift codes and clauses used in the transaction which are generally present
in every Verbiage copy of a transaction, which is further explained in this report.

The person or entity who leases a bank instrument gets the temporary assignment of that bank
instrument for an agreed-upon fee paid to the owner (lessor) by the borrower (lessee). Once
the Lessor has assigned the instrument to the Lessee, the borrower (Lessee) can for the period
of the lease show these funds for future transactions which require proof of sufficient capital.

A "leased bank guarantee" refers to an instrument such as a "BG, MTN, BOND, or SBLC"
which is borrowed and can be used for a present period (the term of the lease) and price (cost
of leasing the instrument). Having the instrument assigned in his name, allows the borrower
(Lessee) to use the instrument as proof of collateral.

The Lessor/Provider will lease the instrument for a term of one year with the possibility of
renewing the lease at the end of the lease term.

The fees involved in leasing a bank instrument are an initial reservation fee for reserving the
instrument and then a fee for the cost of leasing the instrument for one year. The Leasing fee
is a percentage fee of the amount of the instrument being borrowed/leased.

45
7.4.2 TYPES OF SWIFT MESSAGES USED IN LETTER OF CREDIT AND
SUPPLIER’S CREDIT

MT 701 Issue of a Documentary Credit

When the information in a documentary credit exceeds the MT 700's maximum input
message length, this message is transmitted in addition to the MT 700 Issue of the
documentary credit.

MT 707, 708 Amendment to a Documentary Credit

It serves as a means of notifying the Receiver of changes to the terms and conditions of a
documentary credit issued by the Sender or by a third bank. The issuing bank notifies the
reimbursing bank of this message. It is employed to ask the Receiver to accede to requests for
the repayment of payment(s) or negotiation(s) made in connection with a documentary credit.

The MT 740 authorizes the reimbursing bank to debit the account of the Sender, or one of
the Sender’s branches if so indicated, for reimbursements effected by the instructions in the
MT 740.

MT 742 Reimbursement Claim

The sending bank is the one authorised to refund the recipient bank for its payments and
talks. It is used to request repayment for payment(s) or negotiation(s), as applicable to the

46
bank providing reimbursement, made under a documentary credit.

MT 754 Advice of Payment / Acceptance / Negotiation

This message is sent to the issuing bank by the paying, accepting, or negotiating bank, or the
bank incurring a deferred payment undertaking. It may also be sent by the bank to which
documents have been presented to a bank that has been nominated to pay/accept.

7.4.3 CLAUSES USED IN MESSAGES

 Field 40A: Form of Documentary Credit is a field in MT 700 swift message that is
used to indicate the form of the letter of credit.

 This field was added to account for any usage interest that is not included in the LC
amount recorded in Field 32B. While some banks include this criterion in Field 47A,
others include it in the LC.

47
 Field 71B: Charges- List the charges that apply and who is accountable for each
charge in the relevant fields. Interest and other fees for supplier credit are typically
covered by the applicant.

 Field 78 Instructions to the Paying, Accepting, and Negotiating Bank- In this area, the
issuing bank gives the paying, accepting, or negotiating bank instructions.

Letters of credit (LC) clauses set forth the kind of documents to be submitted and the
responsibilities of the parties to an international commercial transaction. Conflicts
occur when LC rules are not adhered to. Therefore, before buyer and seller engage in
any business transaction, it is crucial to grasp the trade secrets mentioned in the LC
criteria.

48
 CONCLUSION

There are periods when more money is leaving than entering many enterprises that sell
commodities and resources. This typically occurs as a result of the time lag between
purchasing the resources, producing the items, transporting them to the consumer, and
awaiting payment. The duration of this process could put the company's ability to pay
personnel, rent, and several other operating costs at risk.

In this scenario, the buyer typically prefers credit sales conditions to postpone payment if
possible whereas the seller typically wants quick payment. Simply put, both sides want to
keep money in their businesses, where they are most in need of it.

Here, trade finance provides both sides with the desired outcome. The exporter (seller) is
compensated aster, while the buyer (importer) can benefit from extended credit.

Simply said, it is a financing option made available by a third party to support domestic or
international trade. The numerous scenarios covered in this paper demonstrate the various
forms of international funding required by African importers. Financial predictions derived
from historical data and other valuation techniques are used to obtain funding when acting as
a consultant or debt advisor.

If you search for trade finance services in South Africa, you'll discover a variety of options
from various businesses. However, only one can provide a versatile, asset-backed facility that
is adapted to your operational cycle.

49
 CHAPTER-6

LEARNING AND CONTRIBUTION

In order to make the most of my internship, while taking all these consulting Projects,
I learned to be Agile. I was taught to read and do a financial analysis of the business
plan of several start-ups based in South Africa.
I learned how to do efficient research, scope out a project, and break up a project into
smaller, achievable tasks in order to make the most of my internship, this meant
figuring out how to ramp up on the industry, doing internal training, and listening
during meetings and calls to find opportunities to take initiative. These soft skills were
honed while contacting PE /VC investors in the Fintech sector for Africa.
Apart from that, the execution of the activities assigned to me on a day to basis
provided me with the knowledge of Trade finance and its different dimension.
While working on different projects for the firm one of the projects required to do
Valuation of a Kenyan Fintech firm for this I worked closely with the experts and
learned the fundamentals of valuation for a startup.
learnt to to quantify financial goals in terms of following factors:
Profitability
Liquidity
Efficiency
Stability
As it helps in paving a better roadmap for the growth of company.
As a part of the business development team, I helped in the sourcing of clients for the
need for financial instruments such as letters of credit, bank guarantees, and SBLCs.
This process required people skills, listening, and excellent communication. I
contacted 50 new clients and frequently followed up with them regarding their
requirements and updated them with the solutions that they were looking for from the
project. The networking proved to be valuable for the company as it gained business

50
from those clients and a strong base of networking provides back bone to any
organisation.

51
I became familiar with African economy and trade practices of that country and different it is
from the rest of the world. Lastly, I would like to talk about the development of my
communication and relationship-building skills with people at the workplace.

Overall, this procedure assisted me in expanding my professional network and underscored

how crucial it is to establish these ties. As an intern, I learned how important it is to be
excited about learning new things, open to asking for additional work, and interested to learn
and ask questions.

Businesses are primarily interested in problems with solutions, which is where our critical
thinking skills come in handy. I was able to overcome obstacles by drawing on my prior
experience and skills.

52
 CHAPTER 7

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Machokoto, Michael, Mahonye, Nyasha Makate, Marshall (2022), Short-term financing

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Malouche, Mariem, (2009). Trade and Trade Finance Developments in 14 Developing

Countries Post September 2008 - A World Bank Survey,
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John (2009) Are Exporters in Africa Facing Reduced Availability of Trade Finance? 40
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Dhasmana, Anubha (2021) Employment growth in the face of exchange rate uncertainty: The
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Trade Finance Global, Pre and Post shipment Trade Finance, retrieved on June 11, 2022 from
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Xiaoli Guo, Weili Xia, Taiwen Feng, Hongyan Sheng, (2021) Strict trade measures, flexible
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