Economic Outlook of Mauritania
The structure of the Mauritanian economy, characterised by the predominance of the secondary and tertiary sectors (with 34.7% of gross domestic product [GDP] and 44.8% of GDP respectively) remained almost entirely unchanged between 2009 and 2010. After a fall in GDP of 1.2% in 2009, the economy should rebound in 2010, with GDP expanding by an estimated 5%. This is expected to become stronger in the coming years with a slight decline in the tertiary sector to the advantage of the primary and secondary sectors. This performance is the outcome of the combined effects of the implementation of the public finances reform programme agreed with the International Monetary Fund (IMF) and the substantial rise in international minerals prices.
A wide range of projects and reforms have been decided, joining those already launched with the return of donors including the World Bank, IMF, AFD, IDB, AfDB, UNDP and the Arab Fund for Economic and Social Development. External financing has been obtained after the round table meeting for Mauritania in Brussels in June 2010. On this occasion a public investment programme, covering the 2011-13 period, was presented which comprises a portfolio of priority projects worth USD 4.2 billion. These projects concern: i) accelerating economic growth and private sector development; ii) concentrating growth amongst the poor; iii) developing human resources and improving access to basic services; and, iv) improving governance and institutional development.
Key Financial Highlights for ITFC to Consider
The financial sector in Mauritania is yet under-developed, with 88% of the sector’s assets held by commercial banks. One of the main issues leading to this under-development is the monopolization of the commercial banks’ capital by a limited number of shareholders, where the banks’ transactions mainly concern operators of the import – export sector, and are essentially based on short-term financing. There is also a lack of diversification of the products and services offered in the market. Consequently, this slows the development of a competitive private sector.
On the other side, political instability adds risk to the economy of the country. As a result, promoters involved in income generating activities, as well as small and medium enterprises (SMEs) are virtually excluded from bank financing.
ITFC has been always looking for ways to support the SME segment. Adding to the technical assistance, trade capacity development and other trade development activities which can benefit the countries’ trade bodies and impact indirectly the SMEs momentum in the economy, ITFC has developed a dedicated financing tool, to reach SME directly: the Two Step Murabaha. This is a double Murabaha agreement between ITFC and the Bank, and the second between the Bank and the End User (SMEs). By implementing such mechanism, SMEs can benefit from the financing offered by ITFC, a financing which couldn’t have been provided if the relation was directly established between ITFC and the End User, as generally the small businesses do not qualify under the direct financing requirements
Helping SMEs Gain Access to Finance
Access to finance remains one of the main obstacles hindering trade in many countries; and this problem is particularly acute in the least developed member countries (LDMCs), one of which Mauritania. This is why ITFC made it a priority to support LDMCs to help them gain access to finance.
At the same time, ITFC reaches small and medium enterprises (SMEs) through extension of Line of Financing in the form of Two-Step Murabaha Financing (2SMF) to local banks. In this case, ITFC had extended aTwo-Step Murabaha Financing to Banque Mauritanienne pour le Commerce international (BMCI), to be dedicated to selective SMEs. Under this mechanism, it makes funds available to local banks, which then provide the onward financing to the SMEs for specific trade finance transactions.
The 2SMF mechanism is implemented as follows:
- A Murabaha Agreement is signed first between ITFC (as Fund Provider/1st seller) and BMCI (as Purchaser);
- Another subsequent Murabaha Agreement is signed between BMCI (as 2nd seller) and the end Beneficiary (selected SMEs);
- Upon shipment, the BMCI advises ITFC to make the payment of Purchase Price directly to the Supplier;
- After payment, ITFC will then sell the goods to BMCI which in turn will also sell the goods to the end Beneficiary (SMEs) on Murabaha basis (2nd Sale Price);
- At maturity, BMCI shall repay the 1st Sale Price to ITFC and approach the end Beneficiary (SMEs) for the repayment of 2nd Sale Price;
This mechanism transfers the direct credit risk of BMCI which will be the obligor to ITFC
Other features of the deal
- This is the first Shariah compliant Murabaha trade finance deal in favor of a local Commercial Bank in Mauritania to offer SMEs Shariah compliant solutions (Murabaha) to finance their imports.
- ITFC’s financing offers better terms and conditions. The total output cost is very competitive for the SMEs who will benefit from the line.
- This financing is on 6 months revolving basis, the total amount on a yearly basis should reach US$7.7Million, which is a considerable amount taking into consideration the economy scale in Mauritania.
About Our Client: (Why BMCI?)
Banque Mauritanienne pour le Commerce International (BMCI) is the leader private bank in Mauritania. The development policy of BMCI is based on: the quality approach, strengthening the network of agencies, enriching the product line, an advanced computing environment.
BMCI’s development of commercial activities is widely supported by a network of agencies present in all regions of the country (26 locations) with expansion prospects also undertaken in 2009. The bank employs more than 400 employees specialized in different areas of finance and related activities. Internationally, the bank has a large network of correspondents in all continents. Internationally, BMCI has an extensive network of leading correspondent’s banks in different European countries and North America. The main ones: CITIBANK NY (USA), BNP Paribas (France), Natixis (France), ING BANK (Belgium), Banco Bilbao Vizcaya Argentaria (Spain), British Arab Commercial Bank (London) UBAE (Rome). For all of these correspondents, BMCI has a line of credit confirmation documentary for a total of more than US$ 80 million.
In 2010, BMCI received a line of structured financing from the African Export-Import Bank (Afreximbank) for an amount of US$ 11,000,000 (Eleven Million Dollars) for the purchase of an oil tanker in favor of its clients.
Finally, due to the increasing demand on Shariah Compliant Products, BMCI has started new Islamic financing products to help meet the need of the Mauritanian market, along with other developmental projects to serve the community.