The Board of Directors of the African Development Bank Group has approved a $15 million trade finance line of credit and $10 million transaction guarantee for FSDH Merchant Bank in Nigeria. FSDH will use the line of credit to provide loans to local enterprises in Nigeria.
The $25 million package will help to reduce the trade finance gap in Nigeria by making financial resources available to small and medium-sized enterprises (SMEs) in the industrial sector.
The Bank will also guarantee up to 100% 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, the facility will catalyze more than $200 million of trade finance transactions across multi-sectors, including agriculture, manufacturing, and energy over the next three years.
The African Development Bank’s Director General for Nigeria, Lamin Barrow 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.”
The African Development Bank estimates the trade finance gap for the continent at $82 billion. SMEs and other domestic firms have greater difficulty accessing trade finance than multinational and large local corporates.
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 African Development Bank’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.
The Bank’s Director for Financial Sector Development, 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 value of trade finance transactions across multi-sectors such as agriculture, manufacturing, and energy over the next 3.5 years.”
The African Development Bank anchors its current Nigeria strategy on two pillars: supporting infrastructure development and promoting 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 current portfolio in Nigeria comprises 53 operations with a total value of $4.5 billion. This is made up of 30 sovereign operations, with a value of $2.7 billion and representing 60% of total commitments. In addition, there are 23 non-sovereign operations valued at $1.8 billion.