Warehouse Receipt Financing


Among the envisioned impact areas of AHCX is the area of financial inclusion, especially for smallholder farmers, who grow crops other than tobacco, leveraging on the experiences drawn from factors that have encouraged financial support to tobacco growers. Tobacco is probably the single most financial supported crop by the financial services sector in Malawi, despite the fact that other crops have equally good commercial prospects. Every financial institutions looks for some reasonable assurance in source of repayment for any financing as part of the risk mitigation measures during credit assessment. Thus, tobacco has enjoyed the lions share in financial support owing to the assurance of its market, the auction floors, supported by a policy of directing tobacco marketing through a structured market. Financial institutions have thus, reasonable assurance of recovery prospects through this structured market and hence increase their exposure to the sector. This is complimented by the earnings potential and prominence of the crop to the economy. Is there any potential to replicate the same scenario on several other crops within the country? certainly, and the answer is now available through AHCX.

A large proportion of farmers that are banked are tobacco farmers. the mere reason that tobacco proceeds are paid through the banking system compels tobacco farmers to be banked. Seemingly forced as it were, this has actually helped these farmers create their own credit worthiness history, such that some of the farmers have access to finance from lending institutions supported by such history. AHCX replicated the payment of sell proceeds through the banking system and hence farmers of other crops now have the chance to follow in the footsteps of tobacco farmers, becoming bankable and creating their own credit history.

Risk on lending increases when there is no security or collateral as a fall back in case of default. Warehouse Receipt Financing, a concept that is being promoted through AHCX, has come about as a risk mitigated lending product line for financial institutions and is expected to assist most farmers access credit, while waiting for better prices on the market. under Warehouse Receipt Financing, financial institutions are able to extend credit to depositors of commodities at AHCX, with AHCX as the collateral manager, who has custody of the commodity and manages the same, until the commodity is sold through the market and proceeds paid through the institution concerned. By virtue of having commodity that is tied to a reputable market, the financial institution is assured that either way, prospects of loan recovery are high. More so with the fact that such facilities are already discounted - the margin taking care of interest costs and price fluctuations on the commodity.

If smallholder farmers become active participants on AHCX and their payments are through the banking system, doesn’t it then make sense for the banks or financial institutions to get their services closer to these farmer? At least mobile banking services can be available in the rural areas owing to this development. Financial service provider would benefit by having an increased number of new clients on their books, increased deposits from proceeds from sales, increased loan book and exposure to the sector that drives the economy, as well as goodwill for supporting an otherwise marginalised section of the economy. Talk of financial inclusion of the largest section of the Malawi population!

AHCX’s partnership with financial institutions is premised on a focused product delivery that encapsulates risk mitigating factors for the financial institutions, directed financial support for the customers as value added facilitation services through the exchange. Consequently, AHCX product delivery in partnership with the banks has been created following through the demand channel and is envisaged as follows:


 Participating banks extends financial assistance to commodity depositors at AHCX against pledge of agricultural commodities. Normal bank credit risk assessment and due diligence is conducted before disbursement

 Farmers/depositors who want to store their produce in warehouses to avoid distress sale immediately after harvest, Processors/ Traders who want to procure large quantities of produce during the season and process / sell over a period of time.

 AHCX is developing specifications for forward contracts, in which case, depositors taking up forward contracts could require short term financing, awaiting delivery of their contract and settlement of the same.

The Exchange has implemented the Model of warehouse receipt financing. In this regards, it is working with the Banks, as partners in clearing system. Therefore, Banks are participating in the Exchange’s activity to transfer the funds from the buyer to seller. The traders at the exchange need to maintain a Bank account with the designated partner banks and this account will be debited or credited on the instructions of the Exchange.

Banks have access to the Exchange system to verify the authenticity of the warehouse receipt and this simplifies lending process against the warehouse receipt. The module will also allow the banks to indicate any specific warehouse receipt as a pledged or loaned warehouse receipt. In this case, the Exchange acts as a collateral manager to provide the Bank a guarantee against the quality and quantity in the warehouses.

When a Bank loan is granted against the warehouse receipt, the warehouse receipt is indicated as pledged, effectively registering the interest of the bank on the commodity. When the seller wants to sell it, the Banks allows the trade and the proceeds of trades are forwarded to the Bank. The Bank deducts its dues and pays out the balance to the borrower.


Demand for commodities on AHCX by both local and foreign buyers has been overwhelming within the first 8 months of opening the market to December 2013. However, actual trading was constrained by supply challenges. AHCX has about 30 register members who indicated interest to work as aggregators of the commodities from the rural areas and depositing the same at the nearest AHCX warehouse. The biggest challenge for the members has been financial capacity to enable them compete favourable and aggregate significant commodities.
AHCX therefore proposes an adaptation of the WRF structure as detailed above into Aggregator Warehouse Receipt Financing to support these aggregators financially and enable them access large volumes of commodities from the rural markets and actively trade through AHCX.
AHCX appreciates that Banks would not want to release large sum of cash without appropriate risk mitigating measures. Consequently, the modus operandi for the facility is envisaged as follows:
I. Aggregators will be required to have an account with a participating bank of their choice, with special consideration on proximity of the bank’s outlet to an AHCX warehouse in their catchment area.

II. Considering that Banks shall margin/discount the value of every deposit on a warehouse receipt, aggregators shall make arrangements with their bank on how much margin they shall be required to put up to cover the facility. For example, if a bank is only paying 70% of the value, the aggregator shall be required to put up the 30% with the bank in a Fixed Deposit Account. If say, an aggregator needs MwK10million limit on the account, the bank will provide a MwK10 million overdraft, committing its own MwK7millio, secured by the commodity deposited and the balance of MwK3million secured by the Fixed Deposit.

III. Aggregators will mobilise commodities to their nearest warehouse.

IV. The commodities will undergo the normal quality assessment by the independent quality assessor and grades assigned.

V. Where title in the commodity is already in the aggregator’s name, the commodity shall be accepted into AHCX warehouse and registered in the aggregator’s name.

VI. Where the commodity title was in the name of the farmer/trader and not the aggregator, the parties (farmer/trader and Aggregator) will negotiate a price and agree on the same. The commodity will then be accepted into AHCX warehouse and will be registered in the name of the aggregator.

VII. A Commodity Deposit Acknowledgement (otherwise a Goods Received Note) will be issued with all details of the aggregator as the beneficial title holder, commodity type, Grade and weight.

VIII. The aggregator will issue an open cheque in favour of the farmer/trader, drawn on the special Aggregator WRF Account (an overdraft limit). Encashment of the cheque shall only be possible if the cheque is accompanied by a CDA issued by AHCX.

IX. The paying bank shall confirm the authenticity of the CDA against an electronic warehouse receipt in the AHCX system through the interface provided.

X. Upon the bank being satisfied of the commodity value, ascertained by the commodity price multiplied by the weight on the CDA/WR, encashment can be completed.
Banks can continue to monitor exposure through AHCX MIS, marking to market all positions and taking necessary corrective action to minimise risk.


The Exchange operates a T+1 model of settling the trades. This requires the buyer to deposit their money in a settlement account before participating in a trade. However, this is not possible with international trade which is the main target of the Exchange. International trades are often sponsored by the vehicle of Letters of Credit. This is not an immediate payment. Meanwhile, the Exchange needs to pay the depositor immediately. The parties will discuss a possibility of participating Bank creating a product from which the Exchange members could tap to settle trades that are paid through Letters of Credit and other related forms of payment.

The purpose of this facility is to provide liquidity through a financial structure that, in addition to the creditworthiness of the buying client, is based on the contractual obligations of the end buyers, whose creditworthiness and commitments through an irrevocable letter of credit provides additional collateral.

  • The key characteristic of a pre-export finance (PXF) structure is that the exposure of the lenders to the general commercial risks associated with the borrower is mitigated by the lenders taking security over cash flows due to the borrower under confirmed orders from pre-agreed off takers under export contracts. Accordingly, in a PXF transaction, the key objectives are:

    • To ensure that the cash flows under the export contracts are sufficient to repay the loan provided under the facility agreement; and

    • To put in place a mechanism which, in the event of a default scenario, allows the lenders to use those cash flows to repay the loan.

    Apart from the financing institution ring fencing forex proceeds through an irrevocable LC, the financier will mitigate their risk by securing the following:

    • An unrestricted right to assign the borrower’s rights under the export contracts;

    • A confirmation from the off-taker that it has received no prior notice of assignment or charge in respect of the borrower’s rights under the export contracts;

    • Provision that all payments under the export contracts are to be made without set off or counter claim in respect of any payment due from the off-taker;

    • Provision that all receivables due under the export contracts are to be credited to the secured account;

    Issue for considerations include:

    a) Taking security over the physical commodities in the form of a Warehouse Receipt under collateral manager;

    (b) Assigning the receivables generated under the commodity export contracts;

    (c) Establishing an escrow account into which purchasers of the commodity are directed to pay the assigned export receivables. This creates an automatic repayment procedure.