Out-Law / Your Daily Need-To-Know

BNP Paribas in deal to boost trade finance in Africa

Out-Law News | 08 May 2014 | 5:03 pm | 1 min. read

The African Development Bank (AfDB) has approved an unfunded 40-million euro ($56m) risk participation agreement (RPA) with French banking group BNP Paribas to support increased trade finance across Africa.

AfDB said the facility will help address “critical market demand for trade finance in Africa by supporting trade in vital economic sectors such as agribusiness and manufacturing”, in addition to encouraging development of the financial sector.

Under the 50-50 risk-sharing structure, the RPA will broaden the availability of trade finance across Africa over a three-year period by targeting small and medium enterprises (SMEs) and indigenous firms.

BNP Paribas will match AfDB’s undertaking in every transaction, creating a portfolio of up to €80m ($111m), AfDB said. “Including rollovers, this facility is expected to facilitate approximately €500m ($697m) of trade in intermediate and finished goods, raw materials and equipment to support the continent’s economic growth.”

AfDB said: “The majority of African banks have weak capital bases which constrain their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that could have substantial development impact. AfDB’s additionality lies in the use of its ‘AAA’ rating to share trade risk with BNP Paribas and enhance the trade finance capacity of African banks and financial institutions, thereby expanding trade and strengthening regional integration.”

In May 2013, as part of its 10-year strategy, AfDB’s board approved a $100m unfunded RPA with Germany’s Commerzbank to boost trade finance over a three-year period. AfDB said then that its financial resources would “always be a small fraction of Africa’s requirements”.

AfDB warned that official development assistance “could well be largely stagnant in the coming years” as a result of economic pressures in donor countries. The bank said it would “seek new and creative ways of mobilising resources to support Africa’s transformation”.

The founding partner of private equity fund manager AfricInvest Group, Ziad Oueslati, said earlier this year that “the biggest opportunities for the African banking sector are in SME financing, particularly to address a ‘missing middle’ which is due to SMEs’ challenges accessing risk capital versus both large corporations and small micro-enterprises”.

Queslati told an AfDB board retreat in Tunis: “There are also opportunities for African banks to support private sector development through supporting technology that is helping Africa to switch payment systems from paper to electronic, as a way of conforming to emerging global market trends.”