The African Development Bank (AfDB) Tuesday unveiled its 'Trade Finance package', to the tune of US$ 200 million, which will support Ecobank Transnational Incorporated (ETI)'s trade finance activities in Africa.
According to an AfDB statement, received here by PANA, the financial support consisting of 'an unfunded risk-sharing facility' and a 'trade facilitation loan' was approved by AfDB's Board of Directors on 20 February.
'The AfDB’s support will 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 statement highlighted.
The statement also pointed out that the first facility would be a three-year unfunded 'Risk Participation Agreement' of US$ 100 million and under this, the AfDB would 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.
'As a 50/50 risk-sharing arrangement, ETI will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to US$ 200 million.'
Similarly, the second facility is said to be 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 revealed that 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.
'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,' the statement added.
AfDB also stated that the support would therefore foster financial-sector development and regional integration, as well as contribute to government revenue generation.
'It will result in the provision of significant support to financial institutions and SMEs in Africa. Counting roll-overs, the project will facilitate approximately US$ 1.8 billion of trade in intermediate and finished goods, raw materials and equipment to support economic growth.'
Meanwhile, the facility is said to be in line with AfDB’s regional member countries’ priorities geared towards promoting trade and in accordance with the African political objectives as reaffirmed during the 18th African Union Ordinary Session held in January 2012.
Furthermore, it also aligns with AfDB’s Regional Integration Strategy which seeks to consolidate the bank’s engagement in trade finance in Africa.