The African Development Bank Group (AfDB) board has approved a $50 million Trade Finance Unfunded Risk Participation Agreement (RPA) facility with Standard Chartered Bank.
The agreement is expected to boost intra-Africa trade, 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).
Under the deal, the two 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.
“We are excited about finalizing this facility with Standard Chartered Bank as it 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 catalyze more than $600 million in value of trade finance transactions across multi-sectors such as agriculture, manufacturing and energy over the next three years,” said Stefan Nalletamby, AfDB Director for Financial Sector Development.
The African Development Bank estimates the trade finance gap in 2019 for the African continent at $81 billion.
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, added: “The advent of Covid-19, coupled with stringent regulatory/capital requirements and Know Your Customer( KYC) 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 reenergize Africa’s trade, which requires more participation of institutions like the African Development Bank.”