STRUCTURED COMMODITY TRADING: Rwanda Perspective Connecting Markets. Growing Trade. 1 JACKIE NANKUNDA ( LLM ) EAST AFRICA EXCHANGE, RWANDA Trade Africa and Feed the Future Regional Conference, 11 th- 12 th April, 2016, Arusha, Tanzania

2 Agriculture sector 80% of the population Accounts for about 37% of GDP Employs about 80% of women and youth Agriculture sector has about 6% of total traditional bank lending; less than 2% reaches out to farmers who supply the commodities Demand is spread over the year; Supply during the harvest ( season A&B ) Prices collapse during the harvest period and peak progresively Farmers sell low on harvest, and buy high for consumption Fragmented market, informal market about 70% Farmers need instant cash upon harvest of crop, play into hands of middlemen who offer them low prices Storage infrastructure meets only 30-40% of storage needs Banking requirements do not leave options for farmers STAPLE MARKET FACTS

3 STRUCTURED TRADING SYSTEMS USED Inventory Credit System or ‘’warrantage’’ lending based on paper receipt representing grain ( maize/rice/beans) Small holder farmers main target Average farm sizes on 1-3MT ; Grains stored in warehouses of MT Grain discounted by 40-50% on current value, interest rates between 19-24%, stored for 5-6 months Additional collateral may be required, grain not solely collateral Product developed mainly by MFIs Average size of loans as little as $100 per farmer mainly supported by donors & NGOs ( IFDC and USAID ) limited participation of mainstream commercial banks; however some commercial bank such as KCB and BPR involved, requiring additional collateral for financing Grains sold to WFP and RAB. In 2011, WFP bought 375MT from cooperatives and RAB bought 200MT High rejection rate and default in payment remains a challenge

4 EAST AFRICA EXCHANGE A commodity Exchange: Linking buyers & sellers through world class NASDAQ trading platform at low-cost service Through use of information technology to automate the End-to-End system from warehousing to trading to clearing & settlement of payments to delivery the commodity

EAX WAREHOUSING 15 warehouses in Rwanda; 38,000MT combined storage capacity 4,500MT in Eldoret, Kenya

EAX WAREHOUSE RECEIPTING EAX Warehouse Receipt is the basis of trade EAX Warehouse Receipt only issued electronically upon request by depositor eWR: guaranteed in quality & quantity by CMI  Electronic record maintained in Done Technology system  At deposit: legal ownership of commodity remains with owner of warehouse receipt  At trade: EAX transfers legal title to the buyer  Buyer request delivery through EAX  Delivery Period determined

EAX TRADED COMMODITIES? EAX trades in the following three commodities: Maize(80%)Beans(19%)Soya

FUTURE COMMODITIES EAX intends to trade in the following commodities: Wheat Coffee Paddy rice Sorghum Minerals

HOW EAX TRADES o Auctions: reserve price is set by seller o Spot: based on exchange contract which is a standardized contract: ( Product quality/grade, Lot size, Delivery terms & conditions, Payment terms, Price quotations, Dispute settlement); started in 2015 o Forward contracts; risk management tools; started in 2016 o Options & Futures; planned for 2017

10 Electronic Powerhouse Connect market around the world Supports spot trading and futures contracts Real time price discovery Secured and reliable. Risk management tool Provides transparency and fairness in trade Efficient and cost effective Durability and resilience Full protection and security NASDAQ TRADING PLATFORM NASDAQ Trading System

EAX 2015 MILESTONES

12 THANK YOU !!! www. ea-africaexchange.com