The African Development Bank (AfDB) has approved a trade finance package of $200 million to support Ecobank Transnational Incorporated’s (ETI) trade finance activities in Africa.
The package comprises an unfunded risk-sharing facility and a trade facilitation loan.
The AfDB said that the support would “enable Ecobank to enhance its trade finance confirmation capabilities, avail medium-term liquidity support to ETI’s subsidiaries to provide appropriate trade finance to African small and medium enterprises (SMEs) and local corporates, and demonstrate appetite for Africa risk.”
The first facility is a three-year unfunded Risk Participation Agreement (RPA) of $100 million where the AfDB will share with Ecobank, through its subsidiary EBI S.A based in Paris, France, the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa and confirmed by EBI S.A.
The development bank explained: “As a 50/50 risk-sharing arrangement, ETI will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $200 million,” adding that “the second facility is a 3.5-year trade facilitation loan of US $100 million, which will be used by ETI subsidiaries to provide trade finance support to local corporates and SMEs in Africa.”
AfDB noted that the majority of African banks had small capital bases that constrained their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact.
“The project 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 and regional integration, and contribute to government revenue generation. It will also result in the provision of significant support to financial institutions and SMEs in Africa. Counting roll-overs, the project will facilitate approximately $1.8 billion of trade in intermediate and finished goods, raw materials and equipment to support economic growth.”
This facility is in line with AfDB’s regional member countries’ priorities to promote trade and in accordance with the African political objectives as reaffirmed during the 18th African Union Ordinary Session held in January 2012. It also aligns with the bank’s Regional Integration Strategy, which seeks to consolidate the bank’s engagement in trade finance in Africa