AFRICA — The African Development Bank has signed an unfunded $250-million Risk Participation Agreement (RPA) facility with ABSA – a pan-Africa financial institution with a solid presence in 12 African countries.
The 3-year RPA facility was signed on the sidelines of the 2019 Africa Investment Form and will see the Bank and ABSA share default risk on a portfolio of eligible trade transactions originated by African Issuing Banks (IBs) and confirmed by ABSA.
While speaking during the agreement signing, Pierre Guislain, Bank Vice President for Infrastructure, Private Sector and Industrialization, said that the investment “was consistent with the Bank’s High 5s focus to Industrialize Africa, Light up Africa, Integrate Africa, Feed Africa and improve the living standards of Africans.”
Leveraging the Bank’s AAA rating, ABSA will underwrite trade transactions issued by African issuing banks across key sectors like agriculture, energy, and light-manufacturing with a special focus on Small and Medium Sized Enterprises (SME’s) in fragile and low-income African countries.
The Bank’s commitment under the RPA is to assume up to 50% (and 75% in special cases) of every underlying transaction issued by the IBs, while ABSA will confirm such a transaction and bear not less than 50% of its underlying risk.
Working with strategic partners like ABSA, the Bank’s trade finance operations aim to facilitate inter and intra Africa trade by reducing the trade financing gap on the continent.
Since 2013, the Bank’s RPA program has supported over 16 issuing banks with about US$650 million limits in Southern Africa alone, with special focus on SMEs and local corporates in manufacturing, agribusiness, import/export and energy sectors.
In the same period, the program supported over $4billion in trade volumes across Africa, with $938 million of that being intra-Africa trade.
Other trade finance instruments employed by the Bank include: (i) Trade Finance Line of Credit (TFLoC) – funded line provided to banks for the financing of exclusively trade-related transactions in Africa; and (ii) Soft Commodity Finance Facility (SCFF)– funded instrument meant to support the financing of exports of soft commodities across the continent.