The African Development Bank (AfDB) is looking to improve letter of credit (L/C) availability in its plans to broaden the range of trade finance products available across the continent.

The bank wants to plug what it sees as a substantial funding shortage in Africa's trade finance sector.

Potential benefits

Africa currently faces a trade finance funding gap of approximately US$120 billion according to AfDB calculations.

By filling this gap, AfDB aims to foster financial sector development and regional integration, and contribute to government revenue generation.

Constraints

According to research by the AfDB, African banks face numerous constraints in meeting the demand for trade finance.

Major constraints are limited US dollar availability and insufficient limits with confirming banks for L/C confirmation.

Board consideration

This has prompted AfDB to scale up its support for trade finance and according to the bank's head of trade finance operations, Yaw Kuffour, his department has submitted a proposal to the board of directors to at least double funding to facilitate trade finance.

In 2013, the AfDB board approved a US $1-billion trade finance programme to support African trade and provide financing to under-served African-based financial institutions and enterprises.

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