The Board of Directors of the African Development Bank Group has approved a $150 million Trade Finance Unfunded Risk Participation Agreement facility between the African Development Bank and Trade & Development Bank (TDB). The agreement 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 the aspirations of the African Continental Free Trade Area (AfCFTA).
African Development Bank will provide guarantee cover of 50% and up to 75% for transactions in low-income countries and transition states on a risk share basis with TDB to a number of qualifying local and regional banks in the Common Market for Eastern and Southern Africa (COMESA) region, which are active in the trade finance sector. The facility is expected to support about $1.8 billion of trade over the next three years.
"Supporting trade in Africa is a key priority for the AfDB. Trade finance is an important driver of economic growth and is critical for cross-border trade particularly in emerging markets," said Nwabufo Nnenna, the group's Director General for the Eastern Africa region. "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."
Admassu Tadesse, TDB Group President and Managing Director, emphasized, "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."
About the AfDB's Unfunded Risk Participation Agreement (RPA): 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 African Development Bank typically taking a 50 % share of the risk. The Bank selects its commercial partners based on the size of their African portfolio, the breadth of their African market coverage, support for intra-African trade and the quality of the credit approval processes.
The African Development Bank also offers 3-year trade finance Transaction Guarantee (TG) Facility to local banks to support confirmation of their trade finance transactions.
