The African Development Bank Group (AfDB) has approved a US$15 million trade finance line of credit and US$10 million transaction guarantee for FSDH Merchant Bank in Nigeria.

The credit line will be used to provide loans to local enterprises in Nigeria.

The US$25 million package also aims to help reduce the trade finance gap in Nigeria by making financial resources available to small and medium-sized enterprises (SMEs) in the industrial sector.

L/C support

The AfDB will also guarantee up to 100 per cent of non-payment risks arising from letters of credit (L/Cs) and similar trade finance instruments issued by FSDH under the guarantee portion.

This will allow confirmation of trade transactions originated by FSDH, benefiting local import and export businesses.

Overall, AfDB anticipates the facility will catalyse more than US$200 million of trade finance transactions across several sectors, including agriculture, manufacturing, and energy over the next three years.

Closing the gap

The package also aims to help close the trade finance gap in Nigeria. "The availability of trade finance instruments to drive post-pandemic economic recovery efforts cannot be overemphasised," according to AfDB's director general for Nigeria, Lamin Barrow.

"Hence, the bank's financing will help eligible Nigerian SMEs to take advantage of existing and emerging opportunities in the domestic and regional markets," he concludes.

Correspondent reluctance

The trade finance gap for Africa is estimated at US$82 billion by the AfDB, which says SMEs and other domestic firms have greater difficulty accessing trade finance than multinational and large local corporates.

The covid pandemic meanwhile is amongst several factors to lead global banks to reduce their correspondent banking relationships in Africa or to exit the continent completely.

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