The African Development Bank (AfDB) formally signed on May 29th in Marrakech, Morocco, in the prelude of the 48th AfDB Annual Meetings, a USD 100 million unfunded Risk Participation Agreement (RPA) with Commerzbank AG under which the two banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks in Africa and confirmed by Commerzbank AG. T

his facility will help address critical market demand for trade finance in Africa by providing support for trade in vital economic sectors such as agribusiness and manufacturing. It will foster financial sector development, regional integration, and increase government revenue generation ultimately improving Africa's sustainable economic growth.

The majority of African banks have small capital bases which often constrains their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact. Moreover, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth. AfDB's additionality lies in the use of its "AAA" rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.

During the signing ceremony in Marrakech, Tim Turner, AfDB Private Sector Operations Director, stated "Trade is a growth enabler and catalyst for development and this partnership with Commerzbank is yet another step by the Bank to increase the availability of trade finance and help remove a major barrier to trade in Africa, especially for Small and Medium Enterprises in low income countries."

Signing for the Germany-based Commerzbank, Christof Gabriel Maetze, member of the Executive Management Board said: "This facility is greatly relevant for boosting our business in Africa; with the funding, we are going to strengthen our business on the continent where we already deal with 51 countries."

This RPA, spanning over three-year period, is 50/50 risk sharing arrangement that will enable Commerzbank AG to match AfDB's undertaking in every transaction, thereby creating a maximum portfolio of up to USD 200 million. The facility will also result in the provision of significant support to African banks and Small and Medium Enterprises. Counting roll-overs, it is expected to facilitate about USD 1.2 billion of trade in equipment, raw materials, intermediate and finished goods over the three-year period.

The facility aligns with AfDB's Regional Member Countries' priorities to promote trade as was reaffirmed by the African Union at its 18th Ordinary Session in January 2012. It is also in line with the AfDB's Long Term and Regional Integration Strategies which seek to consolidate its engagement in trade finance in Africa.