Nigeria as a developing country mainly depends largely on
commodities as the major products in the non-oil export sub-sector of the
economy. This sector has not been able to experience the needed growth because
the commercial banks that are supposed to be supporting the sector with the
necessary funding, shy away from it due to the perceived inherent risks in
funding the sector.
Export funding can be broadly divided into parts namely; pre and
post export financing. The pre-export financing involves the provision of
working capital needed for sourcing and processing of goods before export,
while the post-export financing involves the provision of funds to cover the
funding gap while awaiting payment from buyers abroad after an exporter must
have shipped the product. It is interesting to note that while most exporters
prefer a pre-export financing facilities, most banks that show a little bit of
interest in supporting them prefer to avail them post-export financing
facilities. This is mainly due to the fact that the risk involve in pre-export
financing is seen to be higher than the post-export financing.
The major risk of the pre-export financing include diversion of
funds, diversion of goods in transit, purchase of low grade products, theft of
goods in the warehouse etc. One major solution to this risk has been the use of
a collateral manager. According www.streetdirectory.com,
collateral managers basically
"look after" collateral on behalf of a lender financing goods. By
using a collateral manager, the lender 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.
In Nigeria, collateral managers are being used in export business to
control the storage of goods, transit of the goods and eventual shipment to the
export destination. In recent times, it is being reported among a number of
banks that the use of collateral manager is becoming ineffective in mitigating the
credit risk in pre-export financing. This is mainly because some of the exporters
have been able to compromise the staff of the collateral management company on
ground at the warehouse. This therefore leads to acceptance of low grade goods
into the warehouse, while the bank paying for high quality goods, reduction in
the quantity of goods in the warehouse despite the presence of a collateral
manager, shortage of goods in transit between the warehouse and the port of
loading despite the collateral manager escorting the truck.
The two major reasons why all these have been made possible is first
because the collateral management service is usually outsourced by the bank to
a third party hence, the bank is not directly in charge of the goods. Secondly, the staff of this company have poor pay package and this makes it difficult for them
to resist the bribe offered by the unscrupulous exporters in order to get them
to compromise. In order to permanently solve this problem, the bank will have
created a collateral management unit within the financial institution. This
should be manned by an experienced person pouched from collateral management
company who will setup the unit and also conduct the needed training for his
staff. I don't think this should be a challenge for any bank since most of them
now own their security unit, loan recovery, fleet management etc.
Before I conclude, I will like to say that the Implementation of this
recommendations by any bank will put the bank in control of everything
happening on the field. It will also give the staff at the warehouse a sense of
belonging and thus, leading to them having a sense of ownership over the goods.
It will also make the staff to be very careful to ensure that the goods are in
order throughout the transaction. All these will definitely lead to a
significant reduction in the probability that the staff of the bank will
compromise when approached with a bribe from the exporter.
Finally, I will like to say that any bank that really wants to
support the non-oil export sector have no reason to shy away from the
pre-export financing again. This is because, the suggestion offered in this
article has showed an effective mitigants that has finally laid to rest the
perceived credit risk that had made many financial institutions to stay from
this sector.
bayemibo@3timpex.com
Bamidele Ayemibo
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