AfDB, FSDH Merchant Bank Sign $20m Trade Finance Facility Pact
BY CHINYERE OBIORA, LAGOS – 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 comprises a $15 million Trade Finance Line of Credit to support SMEs and indigenous corporates as well as a $5 million Transaction Guarantee to support the confirmation of FSDH’s trade finance transactions.
For the $20 million facility availed to FSDH, the AfDB will guarantee up to 100 percent 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.
Also, it is estimated that over the next three years, the facility will catalyse more than $200 million of trade finance transactions across several sectors, including agriculture, manufacturing, and energy.
AfDB’s Director General, Nigeria Country Department, Lamin Barrow, who signed the pack, 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 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.”
According to him, over the last decade, the Bank Group has supported more than 120 financial institutions in 30 African countries and catalysed over $10 billion of trade.
Also speaking while signing for her organization, FSDH Managing Director and Chief Executive Officer, Bukola Smith, lauded AfDB for providing the facility, saying that women-owned businesses would be given priority when funds are disbursed.
“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 utilised because it will help us grow our business and meet the needs of our clients, including women-owned enterprises”, Smith added.
In 2016, the AfDB extended a $50 million Trade Finance Line of Credit to FSDH 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 Organisation and IFC estimate the annual gap in Nigeria at $7 billion. This is as SMEs and other domestic firms continue to grapple with a lack of access to trade finance.
The AfDB’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
