The African Development Bank (AfDB), this week, approved an unfunded $250-million risk participation agreement (RPA) with ABSA Bank.
This RPA, housed within the AfDB’s Trade Finance operations, will enhance African issuing banks’ ability to leverage trade financing through a multisectorial approach.
When fully used, forecast estimates indicate that the facility will catalyze roughly over $2-billion worth of trade in three years.
The facility’s alignment to address the acute market demand for trade finance in Africa through agriculture, transport and manufacturing is consistent with the AfDB’s goals of ensuring that Africa industrialises and trades more.
By extension, this RPA will also foster financial sector development and regional integration, the AfDB said in a statement.
Presenting the project to the AfDB board, financial sector development director Stefan Nalletamby made a robust case for how, through strategic partners like ABSA, the AfDB’s RPA instrument continues to facilitate trade on the continent; thereby helping to reduce Africa’s trade financing gap.
“This facility, through a 50:50 risk sharing approach, will help to promote broad-based economic growth on the African continent through increased facilitation of import-export activities of African corporates and small- and medium-sized enterprises, and increase intra-Africa trade and regional financial integration in line with the AfDB’s Hi5 strategic objectives,” he said.
Under the RPA, the AfDB and ABSA will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and indemnified by ABSA.
The AfDB’s commitment under the RPA is to assume up to 50% of every underlying transaction issued by the said African issuing banks, while ABSA will confirm such a transaction and bear not less than 50% of its underlying risk.