The African Development Bank (AfDB) has approved a US$15 million trade finance package for First Capital Bank (FCB) in Zimbabwe to help bolster intra-African commerce in line with the goals of the Africa Continental Free Trade Area.

The package, comprising a US$7.5 million trade finance line of credit and a US$7.5 million transaction guarantee, is expected to catalyse about US$146 million in trade over the next three years.

Import and export credit

Under the transaction guarantee facility, the AfDB will guarantee up to 100 per cent of non-payment risks from L/Cs and similar trade finance instruments issued by FCB for the benefit of local import and export businesses, small- and medium-sized enterprises (SMEs) and women-led businesses.

The credit line will provide much-needed hard currency financing to support FCB to help close Zimbabwe's trade finance gap and expand its trade finance support for SMEs and local corporates in the southern African country.

AfDB lines of credit

The AfDB's lines of credit, with a maximum tenor of 3.5 years, extend financial support to banks for facilitating trade transactions in Africa, including imports, exports, pre-shipment, and working capital.

Through its transaction guarantee, AfDB leverages its AAA rating to provide up to a 100 per cent guarantee to confirming banks for the non-payment risk they take on African local banks' trade finance transactions, thereby reducing the need for cash collateral.

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