Armchair Tour to North Africa's Well Developed Trade Finance Location EGYPT

By Ravi Mehta, Ph.D.

LC carts "Made in Egypt" - Egyptian Cotton, for example - into world's leading markets such as USA, UK, Italy. LC  brings "Made in USA"  into Egypt. LC is a stepping stone to trade marketing and financing . 

Banking on Ancient Civilization for Modernization

Banking on Modernization Craze for Marketing Financing

The US-based world's No. 1 retailer Wal-Mart sells products made of Egyptian cotton. Egypt exports cotton and cotton textile. Egypt's export markets include Italy, USA, UK and Syria. Egypt imports machinery and equipment. USA is Egypt's leading source of imports. Egypt also does shopping in China and Saudi Arabia.

 The world trades with Egypt, using LCs. Egypt uses LC to trade with the world. Egypt uses international trade for its economic development. It uses LCs for risk management in international trade. Egypt has well developed LC market, in which foreign banks also participate. HSBC Egypt and BNP Paribas Le Caire are the best example of foreign participation, of foreign investment.  They specialize in trade financing and their specialization has a significant contributory role in Egypt's trade development.

Export Development Bank of Egypt helps the country in export promotion. The World Bank owned International Finance Corporation (IFC)'s role in Egypt serves to meet the import financing needs of country's importers working in its private sector.  

Foreign Intervention for  local  Development Acceleration

On its website BNP Paribas Le Caire announces its menu of services suiting Egypt's traders: 

• Track incoming letters of credit issued by the foreign buyer's bank.
• See and review all the amendments and appropriate cover letter.
• Review and respond to incoming transactions quickly and easily.
• Make informed business decisions quickly based on accurate advice from our trade experts.
• Receive advice on different structures of export letters of credit and documentary collections to enhance timeliness of payment.
• Receive advice on using different payment instruments to extend promotional facilities to overseas buyers while maintaining risk control.
• If you are a middle-man you may use our expertise to advice you on different payment mechanisms for your suppliers that matches your financing needs (examples are Authorization to pay, Back to Back Letter of Credits ... etc)

The American banks also work in Egypt's trade finance market. They are Citibank and American Express Bank. There are two banks that are joint ventures between the USA and Egypt. One is Egyptian American Bank. And, the other is Commercial International Bank. The USA trades with Egypt with the help of LC . The LCs issued in Egypt may be confirmed by the banks in the USA. The foreign banks operating in Egypt's finance market provide LC confirmation service, which is much sought after. The LC confirmation facilitates trade (financing).

In the financing of Egypt's exports indigenous banks, however, play a main role. The indigenous banks offer pre-and post-shipment short term financing services.  The banks are reluctant to finance long-term export contracts.  The banks consider LC the best collateral for export financing. Where they find the exporter not creditworthy being not well known in the market and lacking proven track record they ask him to export with LC if he needs export finance. The requirement of LC though reduces risk in export financing but it at the same may also reduce the competitiveness of Egyptian exports. Egypt has Export Credit Guarantee Company (ECGC) as an indigenous risk management mechanism to cover both commercial and political risks in its international trade. An export finance backed by an irrevocable confirmed LC  and credit insurance is the safest loan. 

Indigenous Banks Egypt's Reliable Resources
for use in the country's economic development

Egypt has an indigenous arrangement for developing trade financing expertise among its bankers. It is Egyptian Banking Institute, founded in 1991 by the Central Bank of Egypt, the country's central bank.