UK: Focus On Trade Finance - An Update And Liquidity Options For Tanzanian Banks

Last Updated: 15 May 2013
Article by Peter Kasanda, Teresa Parkes and Michaela Marandu

Tanzania has historically been a country highly dependent on trade finance. With a natural deep sea port in Dar es Salaam, Tanzania is the entry point not only for its own market but for several other land locked countries in the East and Southern African region.

Several international banks operate in the trade finance market in east Africa. Local banks also participate. Given recent global economic uncertainty, local banks have been affected by a lack of liquidity in the market to enable them to carry out their trade finance operations and to effectively service borrower clients. What solutions are there for local banks? What practical steps can be taken by local banks to access funds to on-lend? It is first important to look at the recent history of the trade finance market.

The financial crisis

The financial crisis and ensuing recession in 2008-09 prompted an unprecedented decline in global trade According to the World Bank, trade declined at an even faster pace than during the early years of the 1930s Great Depression. Hopes that Africa's low level of financial development and integration might offer protection from the fallout proved optimistic as did hopes that structured trade finance might prove more resilient than other forms of lending.

The collapse of structured trade finance

Since the financial crisis, the structured trade finance market has shrunk to a fraction of its former size. An estimated 85% of the world's commodity trade is now conducted on an "open account" basis - where the seller bears the full risk of non-payment by the buyer. The second phase of the European banking crisis in late 2011 has exacerbated this issue further.

This situation has developed largely because structured trade finance has proved as vulnerable to the crisis-induced breakdown in trust between bank counterparties as other parts of the financial system. Few trade finance banks have the global scale and network to act on both sides of a transaction, using different branches of their own organisation. The situation has also been made worse by the withdrawal of many banks from the market following bad experiences regarding the security of goods - often as a result of insufficient on-the-ground due diligence in emerging market countries.

African exporters are particularly vulnerable to retrenchment by foreign lenders. In a 2011 World Bank report, Trade finance during the Great Trade Collapse, Nicolas Berman and Phillippe Martin suggest that the higher dependence of African exports on trade finance may explain African exporters' particular fragility to financial crises in importer countries. During a crisis banks tend to reduce lending to countries they view as particularly risky as part of a "renationalization" of their operations, in which exposure to foreign banks and firms is reduced.


But four years on, the picture in Africa is not all doom and gloom. In response to the crisis, international initiatives have been set up to support trade in developing regions such as the Global Trade Liquidity Program (GTLP) which was launched in May 2009.

This global initiative is aimed at bringing together governments, development finance institutions and private sector financial institutions to support trade in developing countries. The GTLP is sponsored by the International Finance Corporation, which has invested USD 1 billion in the program. It is a global platform for trade finance, but Africa Development Bank, which as a major participant of the scheme, will invest up to USD 500 million to finance eligible pools of trade operations exclusively in Africa. Also, of the IFC's contribution, at least 25% is earmarked for Africa.

In the IFC's own words "since its launch in July 2009, GTLP has been acknowledged in the financial industry as an innovative structure to help infuse much needed liquidity into the trade finance market, thereby catalyzing global trade growth" Globally, as of June 30, 2011 a total of USD 1.773 billion of funding had been disbursed to eight program banks.

The difficulty, however, is discovering what has gone on beyond the level of disbursement to participating program banks, which tend to be tight-lipped about their onward lending on the grounds of client confidentiality. But there is a sense that the original idea that funds should trickle down to smaller banks and be directed to SMEs has yet to be realised. Disbursements have been directed towards larger regional banks, rather than local ones. The larger regional banks such as The Eastern and Southern African Trade and Development Bank and the East African Development Bank then on-lend to local banks.

Lines of credit - DFIs

As a local bank, in order to benefit from the flow through of programs such as GTLP, the bank needs to maintain contact with relevant development finance institutions (DFI) and at the appropriate time apply for lines of credit (LoC). Such LoCs are generally unsecured and come at concessional rates in order to improve liquidity in the market.

Alternative providers of funding

In addition to healthy private sector participation in some countries, direct funding by overseas governments - particularly the Chinese - offers a further alternative source of finance. Turkey, too, is taking a growing interest in Africa and currently opens more embassies on the Continent than any other country. African countries with political systems that do not find favour with western developed nations are often tend to bypass programs such as the GTLP and establish financial relationships with the Chinese instead. It is worth local banks remaining updated on the various funding programs of these external emerging countries as several focus on Tanzania. The recent visit of the Chinese President to Tanzania brought with it the signing of several such programs between the two countries.

While the availability of trade finance is a crucial part of the equation, it is worth noting that macroeconomic and political factors are equally important in providing a stable backdrop for trade growth. Inflation, for example, continues to be a problem in some countries, such as Tanzania.

Overall, however, there are grounds for optimism that between global initiatives, private sector participation and direct foreign government support, growth in trade in Tanzania can flourish.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Peter Kasanda
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions