AfDB grants $100-million to FirstRand Bank to boost trade finance in Africa
The two parties will share the default risk on a portfolio of trade transactions.The African Development Bank (AfDB) approved on April 1st a $100-million (€92 million) unfunded Risk Participation Agreement (RPA) for FirstRand Bank Limited South Africa (FRB), in a bid to boost trade financing in Africa.
The AfDB said this initiative was launched to support African banks, which often face major hurdles in obtaining credit support from international confirming banks to undertake sizeable transactions largely due to their relatively small capital bases.
Under the agreement, the two parties will share the default risk on a portfolio of trade transactions originated by issuing banks in Africa and confirmed by FRB across vital economic sectors such as industry, services, agribusiness and manufacturing.
The AfDB said the initiative will foster financial sector development and deepen regional integration, while providing risk mitigation for trade-related transactions handled by African banks.
This 3-year facility is a 50/50 risk sharing arrangement that will enable FRB to match AfDB’s undertaking in every transaction and at its peak, will have a portfolio size of $200 million.
It is expected to support over US $1 billion of trade in equipment, raw materials, intermediate and finished goods over the 3-year period.