| Introduction to the Special Loan for the Development of African SMEs |
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At the Fourth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in November, 2009, Premier Mr. Wen Jiabao announced, ¡°In the next three years the Chinese government will take eight measures to strengthen China-Africa cooperation¡ The third measure is to help Africa build up financing capacity¡, and support Chinese financial institutions in setting up a one-billion-dollar special loan for small and medium-sized African businesses.¡± In order to implement China¡¯s economic diplomacy strategy for Africa, China Development Bank (CDB), a member of the Chinese Follow-up Committee of FOCAC, is the sole agency responsible for implementing the measure of establishing the special loan of US$ 1 billion for the development of African SMEs.
By now, under the special loan, CDB has developed and recorded 34 projects with a total amount of US$961 million, covering 23 countries in Northern, Southeastern, Central and Western Africa, committed 19 projects with a value of US$483 million, and signed 13 projects with a value of US$220 million, with a balance of US$49.75 million. These efforts have directly created about 15 million jobs and indirectly stimulated US$ 40 million of imports and exports of African countries, which has generated positive social effects and aroused wide interest among African countries. The details of the special loan are as follows, which are useful for accelerating the implementation of the measure.
I. Principles and Features of the Loan
i. Principles
Focus on providing financing support to African SMEs, benefit the African continent through market operations, consolidate Sino-Africa traditional friendship, cooperate to yield a mutual beneficial result and win-win outcome, and advance Sino-Africa new-style strategic partnership.
ii. Features
Policy-based: The special loan, as one of the eight new measures to strengthen Sino-Africa cooperation, aims to realize the pragmatic cooperation with Africa and deepen Sino-Africa partnership by helping African SMEs in financing.
Market-based: The special loan is not a kind of government aid. CDB will provide financing support with commercial loans and preferential loans in accordance with the significance of the projects, credit rating of borrowers and risk assessment of the projects as well as the liberalization level of interest rates in different African countries with a view to genuinely benefit the grassroots of the African continent.
Inclusiveness: China adopts different policies for different countries, and develops special loan business based on the real conditions of African countries so as to benefit each African country with diplomatic relations with China.
At the Fourth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in November, 2009, Premier Mr. Wen Jiabao announced, ¡°In the next three years the Chinese government will take eight measures to strengthen China-Africa cooperation¡ The third measure is to help Africa build up financing capacity¡, and support Chinese financial institutions in setting up a one-billion-dollar special loan for small and medium-sized African businesses.¡± In order to implement China¡¯s economic diplomacy strategy for Africa, China Development Bank (CDB), a member of the Chinese Follow-up Committee of FOCAC, is the sole agency responsible for implementing the measure of establishing the special loan of US$ 1 billion for the development of African SMEs.
By now, under the special loan, CDB has developed and recorded 34 projects with a total amount of US$961 million, covering 23 countries in Northern, Southeastern, Central and Western Africa, committed 19 projects with a value of US$483 million, and signed 13 projects with a value of US$220 million, with a balance of US$49.75 million. These efforts have directly created about 15 million jobs and indirectly stimulated US$ 40 million of imports and exports of African countries, which has generated positive social effects and aroused wide interest among African countries. The details of the special loan are as follows, which are useful for accelerating the implementation of the measure.
I. Principles and Features of the Loan
i. Principles
Focus on providing financing support to African SMEs, benefit the African continent through market operations, consolidate Sino-Africa traditional friendship, cooperate to yield a mutual beneficial result and win-win outcome, and advance Sino-Africa new-style strategic partnership.
ii. Features
Policy-based: The special loan, as one of the eight new measures to strengthen Sino-Africa cooperation, aims to realize the pragmatic cooperation with Africa and deepen Sino-Africa partnership by helping African SMEs in financing.
Market-based: The special loan is not a kind of government aid. CDB will provide financing support with commercial loans and preferential loans in accordance with the significance of the projects, credit rating of borrowers and risk assessment of the projects as well as the liberalization level of interest rates in different African countries with a view to genuinely benefiting the grassroots of the African continent.
Inclusiveness: China adopts different policies for different countries, and develops special loan business based on the real conditions of African countries so as to benefit each African country with diplomatic relations with China.
Flexibility: The special loan can satisfy financing needs of SMEs of all kinds; both investment loans of fixed assets and liquidity loans are available with the tenor of no more than 5 years. The currency can be the dollar, the Euro, and the RMB. Floating or fixed interest rate can be adopted, and the repayment schedule can be decided flexibly through negotiations.
II. Definitions of African SME
The special loan is set up by CDB dedicated to supporting the development of African SMEs, including solely African-owned SMEs, solely Chinese-owned SMEs in Africa, Chinese-African joint-equity SMEs, and contractual joint venture SMEs.
The criteria of SMEs are defined by local laws and regulations. If there is no such definition, criteria of relevant countries and financial institutions in the region with the same economic development should be referred to. Enterprises, which have effectively increased jobs, promoted local economic development and acquired SME qualification from relevant governmental departments of African countries, could be considered as SMEs.
III. Operational Modes
There are two operational modes: on-lending and direct lending.
i. On-lending
CDB would be extending proper credit lines to each on-lender. The local SMEs could apply for credit line to the on-lender which is responsible for project screening, assessment, operation and final repayment of the loans. After the on-lenders approve each application, they should report to CDB for ratification. After the approval, CDB will lend the loan to on-lenders which pay to local SMEs then. Credit structure allows the sovereignty guarantee, commercial insurance, guarantees and pledge by multilateral financial institutions, etc. On-lenders are always government-designated on-lending institutions, regional or sub-regional financial institutions, high-ranking commercial banks in their countries.
ii. Direct Loan
CDB directly grants credit lines to local SMEs with higher credit rating, viable and commercially feasible projects, and controllable risk. Credit structure includes guarantee, pledge and collateral, commercial insurance, etc.
IV. Scope of support
i. Infrastructure: transportation, power, water supply, post service, communication, agricultural water conservancy and irrigation, public infrastructure, etc.
ii. Basic industries: processing, manufacturing, agriculture, construction, building materials, medicine and health, light textile, electronics, etc.
iii. Tertiary industry: commercial circulation, service industry, etc.
iv. Others: energy conservation and environmental protection, culture, education, etc.
V. Suggestions
In order the highlight the policy-based nature of the special loan, economic and commercial counselor¡¯s offices of the Chinese embassies all over Africa will be requested to help CDB build contact with SME authorities or commerce departments in local countries so as to attract enough attention and recognition of the local governments. Besides, government departments of African countries could recommend financial institutions as on-lenders or projects of interest with great political significance and good social benefits. CDB will select the final borrowers after assessment.
As for application for the special loan, please contact CDB staff in local countries.
VI. Cases
i. On-lending case
Equity Bank Ltd., first incorporated in 1984 as Equity Building Society, is an Kenyan institution dedicated to housing mortgage loan and microfinance. It became a stock bank after reorganization and acquiring banking license. In 2008, it had total assets of US$993 million, owner¡¯s equities US$253 million, and a net profit US$52 million, with sound performance. Since it has 81 branches in Kenya and its loans on SMEs, agriculture and microfinance account for 47.2% of the total, Equity Bank has rather rich experience of screening, ratification and management of SME projects. CDB has signed the special loan agreement worth of US$50 million with Equity Bank in May 2010, and has lended US$1.5 million already on Martary Tea Plantation extension project, which created 140 jobs. Relevant approval procedures of follow-up projects are ongoing.
ii. Direct loan case
Wonder Lighting Egypt Co. (¡°Wonder Lighting¡±), is a private company in Africa invested by China Shanghai Wonder Lighting & Machine Co., Ltd ( ¡°Shanghai Wonder¡±), which was approved by MOFCOM and Shanghai Municipal Commission of Commerce. It was founded in November 2oo5 in Egypt with registered capital of EGP 12 million (about US$2.55 million). The company is engaged in manufacturing, production and sales of all kinds of bulbs, daylight lamps and energy-saving lamps. There are two firms for production in Egypt with the annual production of 7.5 million ordinary bulbs, 1.5 million daylight lamps and 1.5 million electronic tablets of energy-saving lamps. In October 2010, CDB lent US$1 million to Wonder Lighting for the purchase of raw materials and regular operation, which effectively eased the local demand of electric light products and offered more than 200 jobs opportunities for local citizens.
All information published in this website is authentic in Chinese. English is provided for reference only.
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