AfDB approves $25m facility to support FSDH Merchant Bank’s funding for Nigerian SMEs
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The Board of Directors of the African Development Bank Group (AfDB) has approved a $15 million trade finance line of credit and $10 million transaction guarantee for FSDH Merchant Bank in Nigeria.
FSDH is expected to use the line of credit totalling $25 million to provide loans to small and medium-sized enterprises (SMEs) across Nigeria, thereby helping to bridge the trade finance gap in the country’s industrial sector.
In addition, AfDB assured that it will guarantee up to 100 percent of non-payment risks arising from letters of credit and similar trade finance instruments issued by FSDH under the guarantee portion. This will allow confirmation of trade transactions originated by FSDH, benefiting local import and export businesses.
The facility aligns with the African Development Bank’s Financial Sector Development Policy and Strategy to deepen Africa’s financial systems. It also aligns with two of the bank’s High 5 strategic priorities: ‘Feed Africa’, and ‘Industrialize Africa’.
Overall, the facility will catalyze more than $200 million of trade finance transactions across multi-sectors, including agriculture, manufacturing, and energy over the next three years.
Lamin Barrow, AfDB’s director general for Nigeria, said the availability of trade finance instruments to drive post-pandemic economic recovery efforts cannot be overemphasized.
Barrow lamented that the Covid-19 pandemic and other factors had led global banks to reduce their correspondent banking relationships in Africa or to exit completely.
He, however, expressed optimism that the bank’s financing will help eligible Nigerian SMEs to take advantage of existing and emerging opportunities in the domestic and regional markets.
According to estimates by the African Development Bank, the trade finance gap for the continent is around $82 billion, while SMEs and other domestic firms have greater difficulty accessing trade finance compared to multinational and large local corporations.
The African Development Bank believes there are numerous opportunities for the youth and women from its financing and non-lending activities. Therefore, it anchors its current Nigeria strategy on two pillars: supporting infrastructure development and promoting social inclusion through agribusiness and skills development.
The bank’s current portfolio in Nigeria comprises 53 operations with a total value of $4.5 billion. This is made up of 30 sovereign operations, with a value of $2.7 billion and representing 60 percent of total commitments. In addition, there are 23 non-sovereign operations valued at $1.8 billion.