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Diamond Bank disburses N1b under SME lending scheme to boost financial inclusion

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Diamond Bank Plc, has demonstrated its support for Small and Medium-Scale Enterprises (SMEs), with the disbursement of over N1billion under the cash flow-based SME lending scheme.

The bank has disbursed a total of ₦267million during the pilot phase of the scheme, and additional ₦750million between June and August 2018. Remarkably, all the loans disbursed under the scheme to the 550 small businesses are performing, despite the recipients of the facilities being first-time borrowers.

The initiative, which was launched in January 2017, in partnership with the Women’s World Banking (WWB), is a cash flow-based MSME lending methodology, which has a strategic focus on cash flow, net asset capacity, character and business proficiency of SMEs as a means of determining their eligibility to access credit.

The Chief Executive Officer, Uzoma Dozie, said Diamond Bank has resolved to develop innovative ways of advancing financial inclusion in Nigeria.
“It is a signal to many more successes to come, as we push through our technology-driven retail-focused strategy, designed to position Diamond Bank as the most profitable and fastest growing retail bank franchise in Nigeria by the year 2020.

“We are confident that the future of retail banking belongs to banks with disruptive business models and solutions that deliver superior customer experience through strategic alliances as well as create life-style-focused products, processes and channels.

“We pride our financial inclusion strategy as the most robust and customer-centric in the Nigerian banking industry and will achieve more milestones through data-based initiatives that are simply, Beyond Banking.”

Diamond Bank is Nigeria’s lead driver of financial inclusion, providing enhanced customer experience through innovation and technology, regarded as a supporter of small businesses through SME lending, capacity building, business seminars, and workshops.

The bank has also played a leading role in partnering with domestic and International bodies such as The Gates Foundation, MTN, Medical Credit Fund (MCF), and Entrepreneur Development Centre (EDC) among others to create easy access to financial services for the unbanked.

The bank has cultivated excellent banking relationships with well-known international banks, allowing us to provide a range of world class banking services to suit the business needs of our clients.(GuardianNG)

 

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Banking / Insurance

Current Legal Issues Arising from Banking and Financing Arrangements

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In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.

The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.

This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.

Financial Conditions and their Implication on Covenants in Finance Documents

Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.  These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.

Also Read: Helios Investment Partners Backed Africa Specialty Risk Group Launches

However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.

In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties. 

Legal Considerations for Borrowers and Lenders

With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.

First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.

Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.

It usually includes confirmation that:

(i) no Event of Default or a potential Event of Default has occurred and is continuing; and

(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.

In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.

Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.

Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.

Conclusion

The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.

It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.

Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.

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Banking / Insurance

Financial Inclusion: Ecobank Group And Alipay Partner On cross-border remittance

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Alipay users to benefit from Ecobank’s cross-border remittance solution

LOME, Togo, February 12, 2020 – The leading pan-African bank, Ecobank has signed a cross-border remittance agreement with Alipay, the world’s leading payment and lifestyle platform, that aims to bring more inclusive financial services by providing a fast, safe, affordable and convenient way for workers to transfer money back home.

The partnership will facilitate instant transfers from Rapid transfer, Ecobank’s remittance solution, to users of Alipay, which serves more than 1.2 billion people globally together with its local e-wallet partners. This provides an additional channel option which will increase options available to users, help lower transaction costs and enhance the quality of service in the market.

Also Read: How Tech Is Enhancing Recruitment: An Interview With Sandy Simagwali, Co-Founder Of Graft Africa

Nana ABBAN, Group Consumer Banking Head said: “Our panafrican cross-border remittance solution, Rapidtransfer, has over the years been delivering transparent, convenient, and affordable services to the African diaspora and their African-based dependants. So, it is a natural extension for us to use it to deliver the same advantages to migrant workers across Africa. Through our partnership with Alipay we are further leveraging the scale and capacity of our unified payments ecosystem on the global stage.”

“We are excited to partner with Ecobank and use our technology to bring fast, affordable, and convenient remittance services to more users globally, especially workers who are living far from home,” said Ma ZHIGUO, Alipay’s head of the global remittances business. “We are committed to working with partners such as Ecobank, using innovative technologies to help global consumers gain access to inclusive financial services, creating greater value for society and bringing equal opportunities to the world.”

The solution will be rolled out across our entire footprint, subject to required local approvals.

Ecobank

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A “Meeting of Minds” Report Identifies Five Main Challenges Facing African Banks

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Pierre-Guy Noël, Chief Executive-MCB Group (Source: The Mauritius Commercial Bank Ltd (MCB)

Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by Mauritius Commercial Bank (MCB)

PORT LOUIS, Mauritius, December 20, 2019- In October 2019, during the tenth Africa Forward Together (AFT) forum in Mauritius and spearheaded by Mauritius Commercial Bank (MCB), a special workshop aptly called “Meeting of Minds” session leveraged the insight and brainpower of over 35 C-level and senior banking leaders across the African region and beyond.

The aim of this session was to identify and prioritise the main challenges faced by their banks in five distinct but interlinked areas that were purposefully scoped to look beyond numbers:

  • Expertise
  • People
  • Operational Efficiency
  • Risk
  • Corporate Sustainability


Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by MCB. It identifies five main challenges facing African banks and financial institutions, as follows:

  1. Lack of technical expertise amidst the increased cybersecurity risk
  2. KYC issues hampering financial inclusion
  3. Talent Management, retention and development
  4. Customers’ education and staff skills gap
  5. IT & Digitalisation and Transformation Programme – Expertise

On a maximum rating of 9 points, the experts assessed the following:

Risks:

  • Cybersecurity and lack of experience: 7.1


Sustainable development:

  • Inadequate institutional framework is a burden: 7.1


People:

  • Talent management: 7


In the editorial of the report, MCB Group CEO, Pierre-Guy Noël speaks of an alignment of African banks and institutions on the key issues they have to face. “Considering the relative heterogeneity of African markets in terms of distinct characteristics and level of maturity in consumer behaviour, there was a remarkable alignment on the challenges facing the region’s financial institutions,” he said. On the main threat posed by cybesecurity, MCB Group CEO observed : “Additionally, there is a lack of appropriate risk assessment and framework that caters for the exigencies arising from the use and adoption of new digital solutions.

The rise of cybersecurity attacks and other cyber frauds were therefore highlighted as the most significant challenge, compounded by the lack of technical expertise and familiarity at senior levels in these fields (…) In parallel across the rest of most institutions, is the significant shortage of technical expertise and know-how in IT, digitalisation and related transformation programmes…”

The lack of KYC and other compliance frameworks “to facilitate the on-boarding of unbanked segments remain a key obstacle for regional banks to further financial inclusion. This challenge emerged in many discussions”, added Mr. Noël, who also stresses upon the challenge of developing solutions from customer segments that are distinct and sometimes unrelated (urban customers with high digital literacy vs rural unbanked segments requiring traditional supports and channels).

Last but not least, sustainable development and the necessity to embed its principles into corporate DNA are also issues highlighted by Mr. Noël. “The alignment of long-term value to stakeholders with corporate sustainability requires a considerable strategic push, a deep adjustment of corporate culture and a more measured risk-management mindset. This adjustment will have to take place sooner than later, because a trusted bank with a wider positive impact is increasingly being upheld as the minimum standard vis-à-vis stakeholders ranging from our own customers and central banks, to providers of lines of credit”.

Also Read: Vodacom Tanzania and WorldRemit launch mobile money transfers to M-Pesa accounts in Tanzania

MCB’s CEO insists on the fact that the insights of the report can help prioritise strategies for the future and promote awareness “that collaboration and partnership within the region has potential to address many of the common challenges facing African banking and financial services today”.

Read the full “Meeting of Minds” report here http://bit.ly/2MfPRy2

The Mauritius Commercial Bank Ltd (MCB).

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