The African Development Bank (AfDB) has signed a new $20 million trade finance facility with FSDH, a leading Nigerian non-bank financial institution. The facility is designed to support Small and Medium Enterprises (SMEs) in Nigeria by providing access to much-needed trade finance.
Speaking at the signing ceremony in Lagos recently, Lamin Barrow, director-general of the AfDB’s Nigeria country department, highlighted the importance of trade finance for economic development in Africa, noting that the availability of trade finance in the region was constrained by various factors. He stated that the new facility was a step towards addressing those constraints and would be instrumental in unlocking trade finance solutions for SMEs in Nigeria.
Barrow went on to highlight the AfDB’s extensive track record in supporting trade finance across Africa. He pointed out that the bank had worked with more than 120 financial institutions in 30 African countries over the past decade, catalysing over $10 billion in trade. He also noted the long-standing partnership between FSDH and the AfDB in supporting SMEs and Nigerian corporates involved in trade and export value chains.
According to Barrow, the $20 million facility has two main components. The first is a 15 million dollar Trade Finance Line of Credit, which will support eligible SMEs and corporates engaged in international trade value chains. The second is a $5 million transaction guarantee, which is intended to strengthen FSDH’s correspondent banking relationships. These two components of the facility will work together to facilitate trade and promote economic development in Nigeria.
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The AfDB Nigeria office head stated further that the development will provide 100 percent guarantee to confirming banks to cover the non-payment risk of FSDH arising from the issuance of letters of credit and other trade finance instruments.
“This agreement is a testament to our collective endeavours to plug the trade finance gap in Nigeria by working with a valuable partner such as FSDH that provides critical support to SMEs.
“We look forward to the successful implementation of this project while reaffirming the AfDB’s commitment to deepening and strengthening the financial sector in Nigeria,” he added.
According to estimates from the AfDB, the trade finance gap in Africa amounts to $81 billion per year, while a recent study by the World Trade Organisation (WTO) and the International Finance Corporation (IFC) estimated the gap in Nigeria to be $7 billion annually. The study also found that banks in Nigeria reject 25 percent of all trade finance requests from their clients. This is due to a combination of factors, including a lack of correspondent banking relationships and inadequate access to foreign exchange.
In response to the challenges faced by SMEs and local corporates, the AfDB established its trade finance programme in 2013. The programme is designed to provide critical liquidity and risk mitigation support to financial institutions in Africa, with a focus on SMEs and local corporations engaged in international trade.