AfDB, StanChart share default risk in $50m intra-African trade boosting facility
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The board of directors of the African Development Bank (AfDB) has approved a $50 million multinational trade finance risk participation agreement (RFA) facility between the AfDB and Standard Chartered Bank.
A statement issued by AfDB said the agreement signed on September 8, 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).
According to the statement, 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.
AfDB also emphasised that beneficiaries of the $50 million 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 statement added that the facility is aligned with AfDB’s high five goals, which include light up and power Africa; feed Africa; industrialise Africa; integrate Africa; and improve the quality of life for Africans.
Stefan Nalletamby, AfDB’s director for financial sector development, expressed delight about finalising the facility with Standard Chartered Bank, noting that it offers AfDB the flexibility to use its 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.
Nalletamby further disclosed that the partnership is expected to catalyse over $600 million in value of trade finance transactions across multi-sectors including, agriculture, manufacturing and energy within the next three years.
According to Leila Mokadem, director-general of AfDB, Southern Africa region, 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, with some exiting the market altogether.
Mokadem called for an urgent need to finance and re-energise Africa’s trade, which he noted, requires more participation of institutions like the African Development Bank.
In 2019, AfDB estimated the trade finance gap in Africa at $81 billion and pointed out that SMEs and other domestic firms have greater difficulty in accessing funds compared to multinational corporations.