A $175 million Trade Finance Funded Risk Participation Agreement facility between the African Development Bank and Trade & Development Bank has been authorized by the Board of Directors of the African Development Bank Group (TDB).
The deal is anticipated to increase commerce within Africa, encourage regional integration, and help close the trade finance deficit in Africa.
The Bank will support the trade activities of regional corporations and small and medium-sized enterprises (SMEs) in member nations of the Common Market for Eastern and Southern Africa by providing liquidity to issuing banks up to 50% (the remaining 50% to be matched by TDB), on a risk-sharing basis (COMESA).
The combined ticket size of the two institutions will be $350 million, which will be used to fund trade transactions.
The African Development Bank is making a strategic effort to support the agenda of the Africa Continental Free Trade Area by assisting in the increase of output in the services, trade, manufacturing, and natural resources sectors.
The Bank’s Director for Financial Sector Development, Stefan Nalletamby, said in a statement shortly after the Board’s approval: “We are excited about finalizing this facility with TDB, which will help TDB scale-up its trade finance offerings across the COMESA region and help close the growing trade finance gap.
It will enable TDB to play a vital role in delivering the money required for the member nations’ economies to recover after COVID-19.
Over the next three years, it is anticipated that this alliance will drive trade finance transactions worth more than $2.1 billion in various industries like agricultural, manufacturing, and energy.
The yearly trade finance gap for Africa is estimated by the African Development Bank to be around $81 billion.
Access to trade finance is more challenging for SMEs and other domestic businesses than it is for major local and multinational corporations.
“The introduction of COVID-19 coupled with stringent regulatory/capital requirements and KYC compliance enforcement, has seen many global banks reduce their correspondent banking relationships in Africa, while some are exiting the market entirely,” said Nwabufo Nnenna, Director General of the Bank’s Eastern Africa region.
Therefore, dedicated financing is urgently needed to revitalize commerce in Africa, especially in low-income and transitional nations, which calls for more involvement from organizations like the African Development Bank.