undertakings from reputable off-takers. This will appeal most to clients who do
not have access to Balance Sheet lending. Money is lent based on the value of
the underlying goods, rather than on the balance sheet of the borrower.
Goods and commodities have an underlying value of their own. NCBA may lend
money against the total value of the goods and commodities, minus some
amount to take account of price and other risks, so long as the said goods are
resalable. Of key importance is that if something goes wrong the bank is able to
take possession of the commodities or goods and sell them to realize monies to
repay any loan amounts outstanding. The Bank can provide commodity-based
financing across part or all of the trade value chain -- from logistics to purchase
and sale of commodities -- with relatively predictable cash flows.
A client therefore borrows against a commodity’s expected worth. If all
proceeds to plan then the Bank is reimbursed through the sale of the assets. If
not then the Bank has recourse to some or all of the assets.
Examples of commodities/products that can be financed under this facility are
rice, sugar, maize, light machinery e.g. transformers, generators, motor-vehicles,
motorcycles and their spare parts, petroleum and related products.
Under this facility NCBA has to engage a Collateral Manager, to take control
and look after the goods/commodity that form part of the Bank’s collateral.
Collateral managers basically "look after" collateral on behalf of a lender
financing goods. By using a collateral manager, NCBA can make sure that
goods, such as commodities, for example, are being controlled in such a way
that if anything goes wrong with the loan, such as the borrower defaulting on
payments, then the bank can get its hands on the goods which are the subject
of the loan, and sell them to recover monies lent.
Role of the collateral management agents (CMA) (extent of responsibility and
liability) will be spelt out in the tripartite agreement to be signed between the
NCBA, The Collateral Manager and the borrower and shall capture:
o Warehouse inspection and certification that its appropriate for type of
commodity,
o Quality assessment and certification,
o Commodity transportation, shipment and control of title documents for
delivery to the bank,
o Custom clearance and delivery to designated area
o Commodity releases in line with mandates,
o Provision of reports, including aging accounts etc.
NCBA will take into consideration the following for every given transaction/deal:
Proof of a market for the commodity/product
Nature of the commodity. This should be a commodity that is easily saleable and
not easily perishable. Examples are grains, light machinery, petroleum products,
sugar, cooking oil, fertilizer.
Know your client
Know the industry and laws and rules governing the said industry example sugar,
petroleum, maize, coffee.