African Development Bank Group (AfDB) has approved a trade finance guarantee to Banque Commerciale Du Burundi (Bancobu) to support Small and Medium Sized Enterprises (SMEs) and local corporates involved in import and export trade.
The Bank will provide a guarantee to Confirming Banks for the non-payment risk arising from the confirmation of letters of credit and similar trade finance instruments issued by Bancobu.
This facility will support the importation of critical inputs such as fertilizer, pharmaceuticals, solar energy panels, farm machinery and other intermediate goods that Burundi needs to revive its agriculture and manufacturing sectors.
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Small and Medium Enterprises engaged in import and export businesses in Burundi can now look forward to enhancing their operations after the African Development Bank Group (AfDB) approved a trade finance guarantee deal for Banque Commerciale Du Burundi (Bancobu).
Following the agreement, Bancobu will provide a guarantee to confirming banks for the non-payment risk arising from the confirmation of letters of credit and similar trade finance instruments issued by lender Bancobu.
Speaking after the board approval, AfDB’s Director General for East Africa Nnenna Nwabufo underscored the critical need for such support in Burundi and on regional businesses.
“We are excited about this partnership which will aid Bancobu to increase its trade finance support to critical sectors of the Burundian economy by leveraging the capital relief provided by the transaction guarantee,” she said. “This aligns with the bank’s focus on private sector development through the provision of support to the financial sector,” she added.
Lack of adequate credit lines from international confirming banks has hampered Bancobu’s ability to support its clients. AfDB’s credit guarantee offering will support the importation of critical inputs such as fertilizer, pharmaceuticals, solar energy panels, farm machinery and other intermediate goods that Burundi needs to revive its agriculture and manufacturing sectors.
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The bank’s Acting Director for Financial Sector Development, Ahmed Attout said the advent of Covid-19 coupled with stringent regulatory/capital requirements and KYC compliance enforcement measures caused many global banks to significantly reduce their correspondent banking relationships in Africa, while some are exiting the vast market altogether.
“There is therefore an urgent need for financing to reenergize Africa’s trade, which requires more participation of institutions like the African Development Bank,” he said.
Founded in 1960, Bancobu is one of the leading commercial banks registered and based in Burundi. The lender is 32 percent owned by the sovereign and serves more than 537,000 clients with a total balance-sheet of $556 million. Bancobu is headquartered in Bujumbura and employs approximately 400 people across 49 branches, providing the widest banking coverage in the East African Community member nation.
Trade finance
AfDB is Africa’s premier development finance institution. It comprises three distinct entities: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). On the ground in 41 African countries with an external office in Japan, the AfDB contributes to the economic development and the social progress of its 54 regional member states.
In December, AfDB approved a $40 million trade finance package in favor of Bank One Limited of Mauritius. The financial package comprised a $25 million risk participation agreement and a $15 million transaction guarantee.
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The transaction guarantee facility now allows the bank to provide, on a transaction basis, up to 100 percent guarantee to confirming banks for the non-payment risk arising from the confirmation of trade finance instruments issued by Bank One.
AfDB 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.
