The African Development Bank (AfDB) has signed an unfunded US$250 million Risk Participation Agreement (RPA) facility with ABSA that should improve access to letters of credit (L/Cs) for companies in key strategic sectors.

Formerly Barclays Africa Group, and originally Amalgamated Banks of South Africa, ABSA has a pan-African presence in 12 countries.

Issuing banks

Under the 3 year RPA facility, AfDB and ABSA will share default risk on a portfolio of eligible trade transactions originated by African issuing banks and confirmed by ABSA.

Leveraging the bank's AAA rating, ABSA will underwrite trade transactions issued by African issuing banks, including L/Cs, pre-shipment and import loans, export and import invoice financing, bonds and guarantees. The tenor of individual transactions will be limited to two years.

Target groups

The facility will target key sectors including agriculture, energy and light manufacturing with a special focus on small- and medium-sized enterprises in fragile and low income African countries.

AfDB's commitment under the RPA is to assume up to 50 per cent (75 per cent in special cases) of every underlying transaction entered into by the issuing banks, while ABSA will confirm such a transaction and bear not less than 50 per cent of its underlying risk.

Since 2013, AfDB's RPA programme has supported over US$4 billion in trade volumes across Africa, with US$938 million of that being intra-African trade.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.