AfDB approves US$50m facility to boost intra-African trade

BUSINESS REPORTER

The African Development Bank Group (AfDB) board has approved a US$50m Trade Finance facility between its banking unit and Standard Chartered Bank meant to boost intra-African trade.

The Unfunded Risk Participation Agreement facility is also expected to promote regional integration and contribute to the reduction of the trade finance gap in Africa, in line with implementation aspirations of the African Continental Free Trade Area (AfCFTA).

The parties will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and indemnified by Standard Chartered Bank.

Beneficiaries of this facility are issuing banks in Africa whose ability to grow their trade finance business has been constrained by inadequate trade confirmation lines from international banks, as well as small and medium enterprises (SMEs) and domestic firms who rely on these issuing banks to fulfill their trade finance commitments.

The agreement was signed last week.

Speaking after the board approval, the bank’s Director for Financial Sector Development, Stefan Nalletamby, said the facility with Standard Chartered Bank offers “us the flexibility to use our strong AAA-rated risk-bearing capacity to increase access to trade finance and boost intra/extra- African trade on the continent, in support of the AfCFTA”.

“This partnership is expected to catalyse more than US$600m in value of trade finance transactions across multi-sectors such as agriculture, manufacturing and energy over the next three years,” Nalletamby said.

AfDB estimates the trade finance gap in 2019 for the African continent at US$81bn. Compared to multinational corporates and large local corporates, SMEs and other domestic firms have greater difficulty accessing trade finance.

The Director General of the Bank’s Southern Africa region, Leila Mokadem, said the advent of Covid-19, coupled with stringent regulatory/capital requirements and Know Your Customer compliance enforcement, has seen many global banks reduce their correspondent banking relationships in Africa, while some are exiting the market altogether.

“There is therefore an urgent need for financing to re-energise Africa’s trade, which requires more participation of institutions like the African Development Bank,” Mokadem said.

The Risk Participation Agreement facility is aligned with AfDB’s High 5 priority goals—light up and power Africa, feed Africa, industrialise Africa, integrate Africa and improve the quality of life for the people of Africa.

 

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