AfDB signs $250million risk participation agreement with ABSA
The African Development Bank has signed an unfunded $250-million Risk Participation Agreement (RPA) facility with ABSA, one of Africa’s largest diversified financial services groups with a presence in 12 countries across the continent.
Aimed at addressing Africa’s trade financing gap, the 3-year RPA facility was signed on the sidelines of the recent Africa Investment Forum which held in Johannesburg, South Africa. The deal was signed through AfDB’s trade finance operations.
Under this 3-year facility, the Bank and ABSA will share default risk on a portfolio of eligible trade transactions originated by African Issuing Banks (IBs) and confirmed by ABSA.
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 AfDB’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: Trade Finance Line of Credit (TFLoC) – funded line provided to banks for the financing of exclusively trade-related transactions in Africa; and Soft Commodity Finance Facility (SCFF) – funded instrument meant to support the financing of exports of soft commodities across the continent.
According to said Pierre Guislain, AfDB’s Vice President for Infrastructure, Private Sector and Industrialisation, “The RPA facility is one of the tools employed by the African Development Bank to alleviate poverty and achieve robust economic growth and sustainable development on the continent through: increased trade facilitation of import-export activities of African local corporates and SME’s; enhanced inter and intra-Africa trade; and regional integration”, adding, “This is consistent with the Bank’s High 5s focus to Industrialise Africa, Light up Africa, Integrate Africa, Feed Africa and improve the living standards of Africans”.
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