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THE African Development Bank (AfDB) has launched a transaction guarantee instrument that will provide 100 percent cover for non-payment risk to regional and international banks for trade initiated by local financial institutions.
The regional bank has said the guarantee would cover an array of trade finance instruments including confirmed letters of credit, trade loans, irrevocable reimbursement undertakings and promissory notes.
“AfDB, through its financial sector development’s trade finance operations, has launched the transaction guarantee instrument designed to provide up to 100 percent cover for non-payment risk to regional and international banks, for trade transactions initiated by local banks in Africa,” said the regional financier in a statement.
It is hoped that the new instrument will provide much needed opportunities for local financial institutions to build relationships with international correspondent banks.
The move is also set to increase links to a global network of trade finance partners and reduce the need for cash collateral, thereby increasing access to finance for Small to Medium Enterprises (SMEs) across the continent.
Speaking during the virtual launch of the guarantee last week, AfDB bank director for financial sector development, Mr Stefan Nalletamby said:
“We are excited about this new instrument as it offers us the flexibility to use our strong AAA rated risk bearing capacity to increase access to trade finance and boost intra and extra- African trade on the continent.
“Our target end-users will be women entrepreneurs, environment-friendly enterprises, SMEs and local corporates through the facilitation of local participating banks.
“Priority will be given to low income and transition States.”
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