The Trade Hub has successfully identified Africa Trade Insurance Agency (ATI) as an entity with the interest and ability to underwrite credit risk for the Warehouse Receipts System (WRS) in Malawi. This initiative is poised to increase finance for grain producers, traders, and buyers in Malawi significantly.
In 2012 the Trade Hub worked with the agricultural commodity exchange of Malawi (ACE), to improve their Warehouse Receipt System, resulting in the first-ever bank financing for warehouse receipts involving ACE with a total value of US $200,000. In the following year finance increased to US $5 million, and in 2014 it further escalated to US $8 million, thereby registering exponential year-on-year growth.
WRS allows farmers to store grain and sell when prices are favorable, using their warehouse receipt as collateral for inputs and other expenses in the meantime. Without such a finance facility, small farmers and traders are forced to sell their grain virtually immediately after a harvest when markets are usually in surplus and prices are low.
While the rapid growth in warehouse receipt finance in Malawi is a great achievement, all the finance is currently coming from only one bank (First Merchant Bank - FMB). As a result, the Trade Hub has been proactively seeking ways to increase the capacity of FMB and to find other entities with lending capacity.
In a series of successful discussions March 16-20 between the Trade Hub and ATI, which has a superb A+ credit rating from Standard & Poor’s, the decision was made to roll out credit insurance from ATI for forward contracts concluded through ACE. The roll-out is forecasted to occur in the next few weeks, well in time for the 2015 grain harvest. The new initiative is projected to increase finance for warehouse receipts traded on ACE finance to as much as US $80 million in 2015, a tenfold increase from 2014. These numbers are subject to further verification and final confirmation is forthcoming.