The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, April 23 an unfunded $50 million Risk Participation Agreement (RPA) with Commercial International Bank Egypt (CIB) (COMI.CA) 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.
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 CIB to take on more risk from other local banks in Africa, thereby expanding trade and strengthening regional integration.
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. CIB will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $100 million.
This is the Bank’s first exclusive export-oriented and intra-Africa trade finance facility.
It will support FIs in Africa and Egyptian exporters engaged in vital economic sectors such as agriculture, construction and light manufacturing. It will also bolster regional integration and support government revenue generation in both Egypt and the destination countries. It will promote inclusive growth by supporting these exporters to expand their export operations and generate local employment.
Ultimately, this agreement between AfDB and CIB will result in the provision of significant support to African banks in the COMESA region and local corporates and small and medium-sized enterprises in Egypt and it trading partner countries in Africa. Including roll-overs, this facility will facilitate approximately US $600 million of trade in intermediate and finished goods, raw materials and equipment to support Egypt and its other African trading partners’ economic growth.