The African Development Bank (AfDB) has approved a $50 million Trade Finance Unfunded Risk Participation Agreement (RPA) with Standard Chartered Bank, the regional banking group said in a statement.
The agreement, the lender said is expected to boost intra-Africa trade, promote regional integration, and contribute to the reduction of the trade finance gap in the continent, in line with implementation aspirations of the African Continental Free Trade Area (AfCFTA).
The statement said 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, AfDB said 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 on Wednesday, 8 September 2021, according to the statement.
The Bank’s Director for Financial Sector Development, Stefan Nalletamby said after the approval that; “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.”
The AfDB 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, stated that “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.”
The Risk Participation Agreement facility is aligned with the African Development Bank’s High 5 priority goals: (i) Light up and power Africa; (ii) Feed Africa; (iii) Industrialize Africa; (iv) Integrate Africa; and (v) Improve the quality of life for the people of Africa.