The Board of Directors of the African Development Bank (AfDB), has approved a $50-million Trade Finance Unfunded Risk Participation Agreement (RPA) facility between the AfDB and the Standard Chartered Bank.
A statement issued by the bank on Tuesday, said the agreement was signed on September 8.
According to the bank, the agreement is expected to boost intra-African trade, promote regional integration, and contribute to the reduction of the trade finance gap in Africa.
This is in line with the implementation goals of the African Continental Free Trade Area Agreement (AfCFTA).
The statement said Stefan Nalletamby, AfDB’s Director for Financial Sector Development expressed delight, adding that the agreement would boost intra-African trade.
“We are excited about finalising this facility with Standard Chartered Bank as it offers us the flexibility to use our strong AAA-rated risk-bearing capacity to increase access to trade finance and boost intra/extra- African trade on the continent in support of the AfCFTA.
“This partnership is expected to catalyse more than 600 million dollars in value of trade finance transactions across multi-sectors such as agriculture, manufacturing and energy over the next three years.”
Also, Leila Mokadem, the Director-General, AfDB Southern Africa region added: “the advent of COVID-19, coupled with stringent regulatory/capital requirements and Know Your Customer (KYC) compliance enforcement, has seen many global banks reduce their correspondent banking relationships in Africa, while some are exiting the market altogether.
“There is therefore, an urgent need for financing to re-energise Africa’s trade, which requires more participation of institutions like the African Development Bank.”
The parties in the agreement are expected to share the default risk on a portfolio of eligible trade transactions originated by African Issuing Banks and indemnified by Standard Chartered Bank.
Beneficiaries of this facility are issuing banks in Africa with ability to grow their trade finance business has been constrained by inadequate trade confirmation lines from international banks.
Other beneficiaries are small and medium enterprises (SMEs) and domestic firms which rely on these issuing banks to fulfill their trade finance commitments.
The RPA facility is aligned with the AfDB’s High 5 priority goals which are: light up and power Africa, feed Africa, industrialise Africa, integrate Africa, and improve the quality of life for the people of Africa.