The global initiative to give business entities worldwide a Legal Entity Identifier (LEI) is to roll out for African small and medium enterprises through innovative collaboration including the London Stock Exchange and a Zimbabwean bank.
The LEI provides globally recognized business identities to SMEs. In innovative partnership Zimbabwe’s NMB Bank will act as the first Validation Agent in Africa, using the bank’s usual onboarding process for business clients, including “know your client” (KYC) and “anti money laundering” (AML) checks, to very businesses identities and ownership information. This should help SMEs access more favourable trade terms on international transactions and improve their access to finance.
Second Muguyo, Finance and Admin Manager at Copperwares, a Zimbabwean copper and silver giftware manufacturer is quoted in a story on Mondovisione website: “We face trade financing challenges not only because we are a small company, but because we are unknown from Zimbabwe. While we are not directly excluded from trade finance, we often receive unfavourable repayment terms which result in indirect exclusion. The LEI, as a globally recognized form of business ID, will give us greater credibility when we apply for finance, engage in international trade and establish new supplier relationships for our manufacturing process.”
Partners in the LEI initiative are:
- The Global Legal Entity Identifier Foundation (GLEIF), a not-for-profit founded by the G20 and Financial Stability Board which manages the global network of LEI issuing organizations and supports the availability of the Global LEI System
- LSEG (London Stock Exchange Group), which is the initiative’s LEI issuing organization
- Zimbabwe’s NMB Bank Limited, which is equipping local SME customers with LEIs
- The Centre for Financial Regulation and Inclusion (Cenfri), an independent, not-for-profit think tank which works on African financial sector development
- Cornerstone Advisory, which specializes in financial sector advisory and training services.
- The project is supported by the German Federal Government through the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.
The aim of supplying LEIs to African SMEs is to boost financial inclusion by helping them apply for trade finance and establish contractual, regulated agreements with banks, payment networks and trading partners. This should mean broader access to financial services and greater participation in both domestic and international markets as well as increasing the flow of inbound capital to fuel Africa’s economic development.
Stephan Wolf, CEO of GLEIF is quoted: “The LEI has the potential to create a more transparent, efficient cross-border exchange of goods and data under the African Continental Free Trade Area. This is the first step toward greater financial inclusion and overcoming the challenges associated with access to trade finance in Africa. Considering the high pace of digitization and regulatory development across the African continent, the LEI is a great natural fit. It is a compelling, ready-to-go cross-border solution for entity identification that is open, reliable and easily integrated into regulatory frameworks.”
GLEIF is keen to hear from governments, non-governmental organizations, banks and other stakeholders interested in expanding the LEI initiative in Africa or replicating the model in other developing economies. Email email@example.com for more information.
Alberta Abbey, LEI Analyst, Data & Analytics, LSEG: “LSEG joined this initiative to facilitate wider LEI adoption across Africa. By demonstrating the uses and benefits of Legal Entity Identifiers, our aim is that this project will encourage more entities across Africa to obtain LEIs. We started the project with a partnership approach, which we intend to continue beyond the pilot.”
Barry Cooper, Technical Director, Cenfri: “The LEI is one of the few initiatives with real potential to meaningfully address the challenges of de-risking in developing markets. The high costs of institutional due diligence and information asymmetries is a core element of the exclusion of small and medium enterprises, and even some corporates, from regional and international markets. A robust global enterprise identity opens up an under-represented large base of SMEs and women-owned businesses to trade across Africa as well as across the global markets. Cenfri looks forward to the deepening of LEI usage across Africa and the inclusion of SME and women-owned enterprises in the global economy.”
- Making Finance Work for Africa: “Promoting the Legal Entity Identifier to foster transparency and trade in African markets” (article by Hugues Kamewe Tsafack and Sarah Weiss, 17 Jan 2021)
- Validation Agent Framework – a new operational model in the Global LEI System, which allows financial institutions to obtain and maintain LEIs for their clients in cooperation with accredited LEI issuer organizations.