The Board of Directors of the African Development Bank Group has approved a $40 million Trade Finance Package in favor of Bank One Limited of Mauritius. The financial package comprises a $25 million Risk Participation Agreement and a $15 million Transaction Guarantee.
The transaction guarantee facility will allow the Bank to provide, on a transaction basis, up to 100% guarantee to confirming banks for the non-payment risk arising from the confirmation of trade finance instruments issued by Bank One. On the other hand, the risk participation agreement will provide up to 50% guarantee cover on a portfolio basis to support trade finance transactions originated by issuing banks in regional member countries. This financial support is expected to help Bank One increase its capacity to support the trade finance needs of key sectors, including Small- and Medium–sized Enterprises (SMEs) and local corporates in Mauritius and across the continent.
“Given the cross-sectoral nature of trade, the proposed facility, while leveraging Bank One’s footprint, is expected to enhance the African Development Bank’s efforts to integrate Africa and improve the quality of life for the African people,” said Lamin Drammeh, the Bank’s Head of Trade Finance, commenting on the approval.
The African Development Bank’s Deputy Director General for Southern Africa, Kennedy Mbekeani, whose responsibilities also cover Mauritius, added: “This approval affirms the Bank’s support for financial integration as a cornerstone for the development of the private sector across the continent.”
The African Development Bank estimates Africa’s annual trade finance gap to be around $81 billion. Compared to multinationals and large local corporates, SMEs and other domestic firms have greater difficulty accessing trade finance. The transaction guarantee and risk participation agreement are some of the strategic tools that the African Development Bank is employing to help reduce the continent’s trade finance gap.