By Muhammad Amaan
The African Development Bank (AfDB) has approved a $150 million Trade Finance Unfunded Risk Participation Agreement (RPA) facility to boost trade in Eastern and Southern Africa.
The Board of Directors of the Bank said this in a statement issued on the bank’s website on Thursday.
According to the statement, the agreement is between the AfDB and Trade and Development Bank (TDB).
The agreement is expected to boost intra-Africa trade, promote regional integration, and contribute to the reduction of trade finance gap in Africa.
This is in line with the aspirations of the African Continental Free Trade Area (AfCFTA).
According to the statement, the AfDB will provide a guarantee cover of 50 per cent and up to 75 per cent for transactions in low-income countries.
The statement said the bank would also provide guarantee cover to transition states
on a risk share basis with TDB.
It said this would be implemented in a number of qualifying local and regional banks in the Common Market for Eastern and Southern Africa (COMESA) region active in the trade finance sector.
The statement quoted Nnenna Nwabufo, AfDB’s Director-General for Eastern Africa region, as saying “the facility is expected to support about 1.8 billion dollars of trade over the next three years.
According to Nwabufo, supporting trade in Africa is a key priority for AfDB.
“Trade finance is an important driver of economic growth and is critical for cross-border trade, particularly in emerging markets.
“We are delighted to work with TDB, a strong partner with extensive knowledge and network in Africa, on a shared ambition to support the region’s Trade,” she said.
Meanwhile, Admassu Tadesse, TDB Group President and Managing Director, expressed the groups’ pleasure in the partnership with AfDB.
“TDB Group is very pleased to continue building on its strategic partnership and fit-for-purpose risk sharing facilities with the AfDB Group.
“To scale up trade finance and other offerings in a region, where there continues to be large gaps in access to trade finance, among others.
“And where major international banks have been withdrawing and reducing their risk appetite,” Tadesse said.
The unfunded RPA is one of the trade finance instruments offered by the bank to support local banks in Africa.
It is designed to give regional and international commercial banks and eligible regional DFIs partial risk cover for their trade finance operations in Africa with the AfDB typically taking a 50 per cent share of the risk.
The AfDB also offers a three-year trade finance Transaction Guarantee (TG) facility to local banks to support confirmation of their trade finance transactions.
