by Kevin Davids
The Board of Directors of the African Development Bank (AfDB) have approved a $200 million Trade Finance Risk participation agreement (RPA) between Sumitomo Mitsui Banking Corporation Europe (SMBCE) and the African Development Bank.
The RPA, replacing an earlier one that expired in late 2019, will incorporate $100 million each of unfunded and funded risk participation to build on the successes of its predecessor in strengthening African trade finance, particularly in the agriculture, energy, manufacturing, and construction sectors, and will expand intra-African trade. The recently expired RPA covered solely unfunded risk participation.
“This agreement represents yet another effort to bring scale and innovation to the Bank’s partnership with SMBCE to better serve the trade finance needs of the continent, said Yaw Kuffour, head of trade finance at the Bank.
Under terms of the agreement, the Bank will extend a 3-year funded and unfunded RPA limit up to $200 million that SMBCE will match, to a total limit of $400 million, in support of a portfolio of eligible trade finance instruments originating from 45 local and regional African banks active in about 17 Regional Member Countries.
In addition to providing liquidity, the Bank will leverage its AAA credit rating to offer SMBCE risk-cover to underwrite trade transactions by the African banks. African Development Bank participation helps to mitigate, for international commercial lenders like SMBCE, some of the perceived risk associated with African banks.
The RPA is structured to ensure that small and medium enterprises (SMEs) will benefit, a continuation of the strategic focus of the earlier RPA, for which SMEs accounted for 83% of utilization. The agreement also contains provisions targeting women-owned businesses, which are a strategic priority for both the Bank and SMBCE.
SMBCE is a wholly-owned subsidiary of Sumitomo Mitsui Banking Corporation Group that focuses primarily on trade finance and project finance in the Middle-East, Africa, and Europe.