The African Development Bank (AfDB) 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.
The facility consists of a $15 million Trade Finance Line of Credit to support SMEs and indigenous corporates and a $5 million Transaction Guarantee to support the confirmation of FSDH’s trade finance transactions.
Similarly, Ecobank Transnational Incorporated (ETI) has also inked a deal that will avail $200 million in sustainability-linked loan to the lender, with a group of five European Development Institutions namely Proparco, Norfund, FMO, DEG and EFP.
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For the $20 million facility availed to FSDH, the African Development Bank will guarantee up to 100percent of non-payment risks from letters of credit and similar trade finance instruments issued by FSDH under the Transaction Guarantee for the benefit of local import and export businesses.
It is estimated that over the next three years, the facility will catalyze more than $200 million of trade finance transactions across several sectors, including agriculture, manufacturing, and energy.
Signing the agreement, Lamin Barrow, African Development Bank’s Director General, Nigeria Country Department, said the arrangement was a testament to the Bank Group’s commitment to help plug Nigeria’s trade finance gap by working with strategic partners like FSDH to provide critical support to SMEs.
Barrow said: “Lack of sufficient correspondent banking lines of credit and inadequate access to foreign exchange have been identified as some of the major reasons banks in Nigeria do not finance trade finance requests from their clients. That is why the African Development Bank established a dedicated Trade Finance Program 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 said over the last decade, the Bank Group has supported more than 120 financial institutions in 30 African countries and catalyzed over $10 billion of trade.
FSDH Managing Director/CEO Bukola Smith, who signed for her side, thanked the Bank for providing the facility. She said women-owned businesses would be given priority when funds are disbursed.
She added: “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.”
The African Development Bank extended a $50 million Trade Finance Line of Credit to FSDH in 2016, which supported 60 beneficiaries for over 370 trade transactions valued at $375 million in terms of volume traded in critical sectors, including energy, agri-business and health, and boosted intra-African trade.
The Bank estimates Africa’s annual trade finance at $81 billion, and the World Trade Organization and IFC estimate the annual gap in Nigeria at $7 billion. SMEs and other domestic firms are grappling with a lack of access to trade finance.
The African Development Bank’s active portfolio in Nigeria comprises 48 operations valued at $4.4 billion. It covers 24 public sector projects amounting to $2.5 billion and 24 private sector operations valued at $1.9 billion.
Furthermore, the ETI credit, said to be the first of its kind to a sub-Saharan African financial institution, is to back Ecobank Group’s sustainability and climate strategy and also includes a climate action plan.
The duo of Proparco, which also is the lead arranger of the facility, and the German consulting firm IPC will offer advisory support to ETI’s teams to actualise the targets, according to a statement by ETI.
“Over the years, Proparco and Ecobank Group have continuously reinforced their partnership through Proparco’s provision of numerous loans, bond subscriptions and risk-sharing facilities including for trade finance to ETI and its subsidiaries, aimed at providing access to finance for underserved segments,” the document stated.
A similar move in June 2021 saw ETI raise Tier 2 sustainability notes valued at $350 million, with June 2031 set as the maturity date of the bond.
ETI said its commitment to tackle the sustainability challenges faced by the organisation involves crafting a climate disclosure report to provide information on its green lending, vulnerability to physical climate risks as well and its exposure to carbon-intensive sectors.
That also entails developing a climate strategy that incorporates sustainable finance targets, first-sector decarbonisation strategies for the most carbon-intensive sectors, an exclusion policy covering thermal coal mines and coal-fired plants and GHG emissions reduction targets for operational and financed emissions.
“Sustainability is integral to Ecobank’s mandate and pan-African purpose,” said Jeremy Awori, chief executive officer of the Ecobank Group.
“The signature of this sustainability-linked loan agreement is another confirmation of the seriousness which the Ecobank Group accords to sustainability, which for us is both a responsibility as well as an opportunity.”
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