The African Development Bank (AfDB) has approved a $15 million trade finance line of credit and a $10 million transaction guarantee for FSDH Merchant Bank in Nigeria to provide loans to local enterprises.
AfDB estimates the trade finance gap for the continent at $82 billion, saying this is particularly worse for small and medium-sized enterprises (SMEs) and other domestic firms, which have greater difficulty accessing trade finance than multinational and large local corporates.
The $25 million package will help to reduce the trade finance gap in Nigeria by making financial resources available to SMEs in the industrial sector.
The lender will also guarantee up to 100 per cent of non-payment risks arising from letters of credit and similar trade finance instruments issued by FSDH under the guarantee portion. This will allow confirmation of trade transactions originated by FSDH, benefiting local import and export businesses.
Overall, over the next three years, the facility will catalyse more than $200 million of trade finance transactions across multi-sectors, including agriculture, manufacturing, and energy.On his part, the bank’s Director for Financial Sector Development, Mr Stefan Nalletamby, said, “We are excited about finalizing this facility with FSDH as having the Bank as a partner will aid FSDH in scaling up its trade finance offerings in Nigeria to help meet the ever-increasing trade finance gap.
“This partnership is expected to catalyze more than $200 million of trade finance transactions across multi-sectors such as agriculture, manufacturing, and energy over the next 3.5 years.”
The facility is part of AfDB’s strategy in Nigeria, which aims to support infrastructure development and promote social inclusion through agribusiness and skills development. The bank believes there are numerous opportunities for the youth and women from its financing and non-lending activities.
The bank’s Director General for Nigeria, Mr Lamin Barrow, while commenting on the loan deal, said: “The availability of trade finance instruments to drive post-pandemic economic recovery efforts cannot be overemphasized. Hence, the bank’s financing will help eligible Nigerian SMEs to take advantage of existing and emerging opportunities in the domestic and regional markets.”
Mr Barrow noted that the Covid-19 pandemic and other factors had led global banks to reduce their correspondent banking relationships in Africa or to exit completely.
The facility aligns with the lender’s Financial Sector Development Policy and Strategy to deepen Africa’s financial systems. It also aligns with two of the bank’s High 5 strategic priorities, Feed Africa and Industrialize Africa.
