AfDB approves $200m facility to support Africa trade
The African Development Bank (AfDB) has approved an unfunded $200-million risk participation agreement (RPA) with Standard Chartered Bank (SCB) to assist in meeting market demand for trade finance in Africa, particularly for vital economic sectors such as agribusiness and manufacturing.
The AfDB expected the facility to foster financial sector development, regional integration, and contribute to government revenue generation.
The RPA between the two banks would allow them to share the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa and confirmed by SCB.
As a 50:50 risk sharing arrangement, SCB would match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $400-million.
The RPA would be for a period of three years.
The AfDB pointed out that the majority of African banks had small capital bases, which constrained their ability to obtain adequate trade limits from international banks and to undertake sizeable transactions that had significant development impact.
Secondly, it said that, despite the growth in trade risk distribution globally, local banks in Africa had not significantly benefited from this growth.
The AfDB believed its value-add was in the use of its AAA rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.
This facility would result in the provision of significant support to African banks and small and medium-sized enterprises.
Counting roll-overs, it would facilitate about $2.4-billion of trade in intermediate and finished goods, raw materials and equipment to support economic growth, the AfDB stated.
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