The African Development Bank (AfDB) board has approved a $50-million Trade Finance Unfunded Risk Participation Agreement (RPA) facility between the AfDB and 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 the 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-sized enterprises (SMEs) and domestic firms who rely on these issuing banks to fulfill their trade finance commitments.
“We are excited about finalising 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 catalyse more than $600-million in value of trade finance transactions across sectors such as agriculture, manufacturing and energy over the next three years,” says AFDB financial sector development director Stefan Nalletamby.
The AfDB estimated the trade finance gap for the African continent stood at $81-billion in 2019. Compared with multinational corporates and large local corporates, SMEs and other domestic firms have greater difficulty accessing trade finance.