The African Development Bank has signed a $20 million Trade Finance Facility Agreement with FSDH Merchant Bank to support small and medium sized businesses in Nigeria’s industrial and manufacturing sectors.
Under the terms of the $20 million facility, the African Development Bank will provide a $15 million Trade Finance Line of Credit to support SMEs and local companies in their trade activities. This line of credit will enable FSDH to issue trade finance instruments, such as letters of credit, to these businesses. Additionally, the African Development Bank will provide a $5 million Transaction Guarantee, which will guarantee the payment of any trade finance instruments issued by FSDH.
It is anticipated that the $20 million facility will catalyze more than $200 million in trade finance transactions over the next three years. This will benefit a wide range of industries, including agriculture, manufacturing, and energy, which are crucial for economic growth and development. The increase in trade finance will support businesses in obtaining the necessary inputs to produce goods and services, as well as the ability to export and sell their products to the global market.
Lamin Barrow, director general of the African Development Bank’s Nigeria Country Department, stated that the agreement with FSDH is a testament to the Bank’s commitment to closing the trade finance gap in Nigeria. Through partnerships with financial institutions like FSDH, the Bank aims to provide crucial support to SMEs, which are the backbone of the economy.
One of the major challenges identified by Barrow is the lack of correspondent banking lines of credit, which makes it difficult for banks in Nigeria to finance trade finance requests from their clients.
“That is why the African Development Bank established a dedicated Trade Finance Programme in 2013 to provide critical liquidity and risk mitigation support to financial institutions in Africa for the benefit of SME and local corporate importers and exporters,” he explained.
Barrow highlighted that in the past decade, the AfDB has made significant efforts to support financial institutions across the African continent. This has included providing financial and technical assistance to over 120 financial institutions in 30 countries, which has helped to catalyze more than $10 billion in trade.
Bukola Smith, managing director and CEO of FSDH, expressed her gratitude for the support of the AfDB and assured that women-owned businesses would be prioritised when disbursing funds under the new facility. Smith noted that the bank’s support aligns with FSDH’s own commitment to promoting gender equality and economic empowerment for women.
“We have been looking forward to receiving this financing. Just like we did with the first facility we received from the African Development Bank, we promise that this one will be well utilized because it will help us grow our business and meet the needs of our clients, including women-owned enterprises,” she added.
According to the AfDB, the annual trade finance gap in Africa is estimated to be around $81 billion. This includes a $7 billion gap in Nigeria, which highlights the significant unmet demand for trade finance in the country. The World Trade Organisation and the International Finance Corporation have also identified the need for improved access to trade finance in Nigeria. This is particularly true for SMEs and domestic firms, which often have difficulty accessing financing from traditional sources.