NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, June 10, 2013

The African Development Bank (AfDB) formally signed on May 29th in Marrakech, Morocco, in the prelude of the 48th AfDB Annual Meetings, a USD 100 million unfunded Risk Participation Agreement (RPA) with Commerzbank AG under which the two banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks in Africa and confirmed by Commerzbank AG. T

his facility will help address critical market demand for trade finance in Africa by providing support for trade in vital economic sectors such as agribusiness and manufacturing. It will foster financial sector development, regional integration, and increase government revenue generation ultimately improving Africa’s sustainable economic growth.

The majority of African banks have small capital bases which often constrains their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact. Moreover, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth. AfDB’s additionality lies in the use of its “AAA” rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.