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F O S T E R I N GD E V E L O P M E N TT H R O U G H T R A D E F I N A N C E
A f r i c a n D e v e l o p m e n t B a n k
I n t r o d u c t i o n
A B O U T T H E A F R I C A N D E V E L O P M E N T B A N K G R O U P History: Founded 1964
Mission: To promote sustainable economic development and social progress in its Regional Member Countries (RMCs), thus contributing to poverty reduction
Constituent Institutions: The African Development Bank (AfDB)• ProvidescommercialloanstoAfricanmiddle
income countries and private sector projects
The African Development Fund (ADF)• Providesconcessionaryloansandgrantsto
African low income countries
The Nigeria Trust Fund (NTF)• Providesconcessionaryloansandgrantsto
African low income countries and to private sector projects
Shareholders: • 54Africancountries(RegionalMember
Countries)• 24non-Africancountries(non-Regional
Member Countries)
Credit Rating: AAA
Authorised Capital: US$100 billion equivalent (Dec2011)
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The African Development Bank’s Trade FinanceProgramme(TFP)seekstosupportAfricanfinancialinstitutionstoaddresson-going constraints in financing international trade.
TheTFPisdesignedtocomplementthe activities of commercial players as well as other Multilateral Development
Banks. The programme’s selected core instruments are designed to support commercial financial institutions to scale up their trade finance activities in Africa. These are:
• theRiskParticipationAgreement(RPA)• the Trade Finance Line of Credit (TFLOC)• the Soft Commodity Finance Facility (SCFF)
The AfDB’s comparative advantage in trade financeThe African Development Bank has a long and successful track record in supporting trade and trade finance, beginning with the establishment of Afreximbank in 1993. As it launches its new Trade FinanceProgramme,theBank hasanumberofcomparativeadvantagesthat makeitwellplacedtoprovide complementary trade finance support in Africa:
Strong balance sheetTheBankisaAAA-ratedinternationalfinancialinstitution with preferred creditor status.
T HE A F DB T R A DE F IN A NCE P ROGR A MME
Development focusThe Bank’s vision is to contribute to the economic and social progress of Africa. It has an advocacy role in harmonising processes and removing bottlenecks to development across the continent.
Risk-bearing capacityUnrivalled risk appetite for Africa and the financial strength to back it.
RelationshipsTheBankhaslongandwell-establishedrelationships with government authorities, MDBs, local and international banks.
LeverageThe Bank’s increasing experience in trade facilitation means that it can leverage trade finance programmes for maximum impact.
Technical assistanceThe ability to provide technical assistance where capacity gaps have been identified at the level of the local financial institution or market.
Holistic approachThe Bank is uniquely positioned to deploy reinforcing instruments and projects in support of trade: Infrastructure projects, advocacy and policy dialogue as well as trade finance facilities.
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A f r i c a n D e v e l o p m e n t B a n k
T r a d e F i n a n c e P r o d u c t s
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This is an arrangement under which a commercial bank and the African Development Bank share the default risk on a portfolio of trade finance transactions.
TheRiskParticipationAgreement(RPA)isdesignedtogiveregional and international commercial banks partial cover for their trade finance operations in Africa, with the AfDB typicallytakinga50percentshareoftherisk.
The commercial bank performs the credit risk analysis on the issuing banks and originates, processes and monitors the transactions.
The AfDB will select its commercial partners based on the size of their African trade portfolio, the breadth of their Africanmarketcoverage,supportforintra-Africantradeandthe quality of the credit approval process.
R I S K PA R T I C I PAT I O N A G R E E M E N T
E L I G I B I L I T YConfirming Bank•MusthavepassedtheAfDB’sduediligenceprocess
for trade finance
• SignificanttradefinancepresenceinAfrica,orthepotential to achieve scale in trade finance in Africa
•Thestrategicintenttoexpanditstradefinancebusinessin low income countries
• AsatisfactoryAfDBcreditrating
Issuing Bank•MustbelocatedandregisteredinaRegional
Member Country of the AfDB
•Havepassedaconfirmingbank’sduediligenceprocess and received a “no objection” approval from the AfDB
• Remain in good standing with the AfDB and the confirmingbankthroughoutthetenoroftheRPA
•HaveastrongSMEfocus
Tenor Maximumof3years. Underlying transactions are limited to two years.
Coverage Upto50%ofcreditrisk.
Pricing The fees charged to issuing banks are market-based.
Currency Mainly in US dollars and euros.
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A D V A N T A G E S Confirming Bank• Expandsgeographiccoverageforservicing
export clients.
• Providescoveragetoleveragetradelinesinnew and challenging markets
• Buildsnewcorrespondentbankrelationshipsonalow-riskbasis
• MitigatesprovisionandBaselcapitalrequirements
Issuing Bank• Increasesbank’screditlines
• Offerstheopportunitytobuildrelationshipswithnew correspondent banks
• Facilitatestradefinancingviaaglobalnetwork of confirming banks
• Enhancestheabilitytomaintainorattractnewclients,especiallySMEs
I S S U I N G B A N K S
I M P O R T E R E X P O R T E R
C O N F I R M I N G B A N K
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A F R I C A N D E V E L O P M E N T
B A N K
1. Admission subject to eligibility criteria
2. Signs sales agreement3. Importer opens a payment
obligation in favour of exporter4. Assumes import risk5. Issues payment obligation6. Assumes political and
commercial risk7. Confirms IB
payment obligation8. Assumes no more than 50% of
portfolio risk as per RPA9. Submits monthly report on AfDB
exposure10. Shipments of goods
A f r i c a n D e v e l o p m e n t B a n k
T r a d e F i n a n c e & W o r l d
Thisisashort-termloan,offeredtoAfricanfinancialinstitutions to facilitate their trade finance operations. The AfDB seeks to support financial institutionswithastrongfocusonSMEsandtradefinance, and that have acceptable and satisfactory corporate governance and risk management systems.
The proceeds from a Trade Finance Line of Credit (TFLOC) enable a financial institution to extend
creditsupporttoSMEsoperatingineithertheimportorexportsectorsoftheeconomy.Facilitiesincludepre-andpost-shipment finance, factoring and import loans, among others.
E L I G I B I L I T YThe financial institution must:
• OperateandberegisteredinaRegionalMemberCountry of the AfDB
• Bealocalbankorasubsidiaryofaninternational bank
• HaveasatisfactoryAfDBinternalriskrating
• HaveastrongSMEfocus
• Haveacceptableriskmanagementandcorporategovernance practices that meet the AfDB’s criteria
• Haveanactivetradefinancebusiness
• Haveastrongtradefinanceteamandoperatinginfrastructure
Tenor: Maximumof3.5years.
Pricing: Risk-based.Theratescanbefloatingor fixed.Front-endandcommitmentfeesapply.
Repayment: Bullet, balloon or straight line amortisation of principal.Interestispaidsemi-annually.
Currency: Any of the AfDB’s major lending currencies – the US dollar, euro, rand and yen.
Security & Collateral:
Unsecured, senior debt.
B E N E F I T S • Catersforabroadrangeoftradeinstruments
• Providesvitalliquidityintheformofshort-termloanstoselectedlocalbanksforon-lendingtoSMEexportersandimporters
• Couldbeusedtosupportvaluechainactivitieslinked to the import and export sectors and as a result help RMCs move up the value chain
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A f r i c a n D e v e l o p m e n t B a n k
T r a d e F i n a n c e P r o d u c t s
2. RMC bank develops a pipeline of trade finance deals and requests TFLOC funding from AfDB
3. AfDB grants TFLOC and assumes RMC bank credit risk
4. Provides trade financing and assumes importers’ and exporters’ credit risk
1. Various importers and exporters request trade financing from RMC bank
A F R I C A N D E V E L O P M E N T
B A N K
A F R I C A N I M P O R T /
E X P O R T E R S
A F R I C A N F I N A N C I A L I N S T I T U T I O N
T R A D E F I N A N C E L I N E O F C R E D I T
The Soft Commodity Finance Facility (SCFF) is a funded trade finance product targeted at commodity aggregators and export marketing agenciesforagri-basedproducts,suchascocoaandcoffee.
These organisations, which deal directly with farmers,useSCFFloanstosupporttheagri-commodity supply chain at the grassroots level.
Tenor: Maximumof3.5years.
Pricing: Risk-based.Theratescanbefloatingor fixed.Front-endandcommitmentfeesapply.
Repayment: Bullet, balloon or straight line amortisation of principal.Interestispaidsemi-annually.
Currency: Any of the AfDB’s major lending currencies – the US dollar, euro, rand and yen.
Security & Collateral:
Unsecured, senior debt.
E L I G I B I L I T Y Eligible institutions will mainly be commodity aggregators engaged in the marketing, financing and exporting of soft commodities in Africa. These institutions:
• MustberegisteredandbeoperatinginaRegionalMember Country of the AfDB
• Shouldbecommerciallyviableonastandalonebasis
• Musthaveanacceptablelevelofoperationalautonomy
• Musthaveastrongriskmanagementcultureandsatisfactory corporate governance practices
Tenor: Maximumof2years.Generally, the facility is structured to align with the cash conversion cycle.
Pricing Risk-based,accordingtoanassessment of the underlying transaction.Theratescanbefloatingor fixed.
Repayment: Repayment is in the form of bullet, balloon or straight line amortisation ontheprincipal.Interestispaidsemi-annually.
Currency: Available in all AfDB major lending currencies – the US dollar, euro, rand and yen.
Security & Collateral:
A senior debt obligation, backed by appropriate collateral arrangements.
A F R I C A N D E V E L O P M E N T
B A N K
S M A L L S C A L E
F A R M E R SI N T E R -
M E D I A R I E S
C O M M O D I T Y A G G R E G A T O R
1 Requests Commodity Financing
2Grants
Commodity Financing
4Sell
Commodities/Buy Agricultural
Inputs
3Provides Financing
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S O F T C O M M O D I T Y F I N A N C E FA C I L I T Y
C O N T A C T STim TurnerDirector,[email protected]:(216)71102051
T H E A F D B T R A D E F I N A N C E T E A MYaw Adu KuffourLeadSpecialist,[email protected] Tel:(216)71102285 Lamin M. DrammehSenior Investment Officer [email protected]:(216)71101579
Mkola S. TambweSenior Investment Officer [email protected]:(216)71101245
Babatunde O. TijaniSenior Trade Finance [email protected]:(216)71101640
Julius KarugaSenior Trade Finance Officer [email protected]:(216)71101663
Website: www.afdb.org
Financial Institutions & Microfinance DivisionPrivate Sector and MicrofinanceAfrican Development BankBP323-1002,TunisBelvédèreTunis-TunisiaWebsite: www.afdb.org
Logo AfDBAnglais + français
Pour format A4
ProducedonbehalfofAfricanDevelopmentBankGroup©2013 ICPublications,7ColdbathSquare,LondonEC1R4LQ,www.icpublications.com
Mohamed KalifDivision Manager, Financial Institutions [email protected]:(216)71102217
