Logistics financing is a specialised form of supply chain finance that provides funding based on the movement and storage of goods. Instead of just looking at a firm's balance sheet, lenders use the actual goods (inventory, in-transit cargo) as collateral.
For a country like Kenya, whose key exports (tea, coffee, cut flowers, horticulture, and now apparel) are often perishable or time-sensitive and dominated by Small and Medium-sized Enterprises (SMEs), logistics financing can be transformative.
SMEs form the backbone of Kenya's export sector. They often lack the working capital to fulfill large overseas orders. They get paid 30, 60, or even 90 days after shipment, but must pay for inputs, labour, and logistics upfront. Logistics financing can easily bridge this payment gap.
With invoice financing or post-shipment loans, an exporter in Nairobi can get up to 80 percent of the invoice value immediately upon shipment. This unlocks capital trapped in the supply chain, allowing them to operate smoothly and take on new orders.
Kenyan exporters face risks like buyer non-payment, currency fluctuation, and political risks in the buyer's country. Instruments like Export Credit Guarantees (offered by the National Treasury Credit Guarantee Scheme) can insure exporters against non-payment.
Factoring companies often take on the credit risk. This makes Kenyan businesses more confident to explore new, riskier markets.
Without financing, an exporter can only produce what their immediate cash flow allows, often missing out on larger, more profitable contracts.
Pre-shipment financing allows a Kenyan coffee farmer or an avocado exporter to purchase larger volumes of raw produce at a better price, process it, and meet the scale demanded by international buyers like European supermarkets. This lowers their per-unit cost and makes them more competitive against exporters from other countries.
Inefficiencies like goods sitting idle in an airport warehouse or at the port due to lack of funds for final logistics leg can easily be avoided.
Warehouse receipt financing should be able to allow a tea or fish factory in Keroka or Gwassi respectively store its harvest and get a loan without having to sell immediately at a low spot price. They can wait for more favourable prices.
Logistics Financing will ensure that once a buyer is found, funds are available to pay for transportation, speeding up the entire process.
Kenya's horticulture and flower industry is highly perishable, and delays in logistics or payments often result in significant spoilage and financial losses.
Quick access to cash through logistics financing can ensure that cold chain logistics, air freight, and other time-sensitive processes are paid for promptly.
This minimises delays and ensures Kenyan fresh produce reaches international markets in optimal condition, enhancing the country's reputation for quality.
Exploring new export markets requires significant upfront investment in marketing, compliance, and sample shipments, which has always been a barrier for many Kenyan firms.
With reliable logistics financing instruments, businesses can leverage their in-transit goods as assets to secure the capital needed for market diversification.
This is crucial for implementing Kenya's export diversification strategy beyond traditional markets. The government, through its regulatory support and its agencies can assist in various ways.
It can strengthen the Movable Property Security Rights Act to make it easier for banks to accept inventory and receivables as collateral.
It can promote and capitalise the Kenya Export Credit Guarantee Scheme by the National Treasury (through County governments) to de-risk more transactions for lenders. And finally, it can continue to digitise port and customs processes to speed up clearances and provide transparent data that financiers can rely on.
Our financial institutions should also therefore co-create international trade and logistics financing instruments that can strengthen our exports’ supply chains. This is a sure bet of catapulting our economy into higher global value chains.
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