USD50m trade finance boost for Africa

The Board of Directors of the African Development Bank (AfDB) has approved an unfunded USD50 million Risk Participation Agreement (RPA) between the AfDB and Citibank NA (Citi) to support trade transactions originated by issuing banks in Africa.

The 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. Moreover, it will foster financial sector development and regional integration, and contribute to government revenue generation. 

AfDB says the majority of African banks have small capital bases which constrain their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact. Besides, 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. Further, Citi has more than 60 years of experience, over 200 correspondent banking relationships, 14 subsidiaries and transaction coverage in 28 non-presence countries in Africa.

Through a 50-50 risk-sharing structure, the RPA will expand the availability of trade finance over a three-year span for clients across Africa. Citi will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to USD100 million. 

Ultimately, this agreement between AfDB and Citi will result in the provision of significant support to African banks and small and medium-sized enterprises across all the 54 African countries. Including roll-overs, it will facilitate approximately USD600 million of trade in intermediate and finished goods, raw materials and equipment to support the continent’s economic growth.

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