The UK's development finance institution and impact investor, British International Investment (BII), has extended a US$150 million trade finance facility to Absa Group that aims to narrow Africa's trade finance gap and support businesses across the continent.

The trade finance gap is the difference between the money available to finance trade transactions and what businesses receive through letters of credit (L/Cs), trade loans, and other trade-related financial instruments. Africa's trade finance gap is estimated to be between US$100-120 billion.

Particularly since the Covid-19 pandemic, BII has recognised the importance of L/Cs for importers and guarantees for exporters as effective tools to enable businesses to access capital and maintain operations, and has provided trade finance facilities to support them without needing to dilute ownership or jeopardise their financial health.

Facilitating trade volumes

The facility provided to Absa Group by BII will focus on providing sustainable and inclusive funding, particularly to women and youth, as well as small- and medium-sized enterprises (SMEs) operating in high-impact sectors such as agriculture, fast moving consumer goods and healthcare.

The facility builds on a long-standing partnership between BII, which operated as CDC until it was rebranded in 2022, and Absa which has facilitated over US$1 billion in trade volumes in Africa since 2019.

Since then, the partnership has provided much-needed trade liquidity in countries including Ghana, Nigeria, Kenya, Uganda, Tanzania, and Mozambique - supporting over US$1 billion in trade volumes, including over the course of the Covid-19 pandemic, which severely strained trade liquidity in Africa.

Risk participation agreement

BII has also announced an agreement with Standard Chartered, with the signing of a US$350 million risk participation agreement.

This facility aims to bolster the trade finance needs of SMEs and corporates across Africa and South Asia and to boost economic growth in those regions.

Since an initial agreement in 2013, StanChart and BII have enabled over US$10 billion in trade volumes in over 10 countries across Africa and South Asia, including Kenya, Tanzania, Nigeria, Bangladesh, Pakistan and Nepal. In the past year, approximately US$450 million of trade has been supported via this facility.

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