Flows of letters of credit (L/Cs) are expected to increase under the African Export-Import Bank's (Afreximbank's) recently unveiled five-year strategic plan.

The Pan-African trade finance provider's Impact 2021 plan aims, in the period 2017-21, to support at least US$90 billion in trade, a very substantial increase in funding compared with previous years.

Improved services

Services expected to benefit from the increased funding include the bank's reimbursement guarantee facility, which enables African and non-African banks to take the credit risk of eligible banks.

Afreximbank issues a guarantee covering the payment risk of African and non-African banks under L/Cs or other acceptable trade debt instruments.

Reimbursement guarantee

Under the facility, banks confirming L/Cs issued by eligible banks may approach Afreximbank to provide a reimbursement guarantee to be called in should the L/C issuing bank fail to pay.

The facility helps African banks issue L/Cs at a reasonable cost without the need for cash collateral and accept L/Cs issued by banks they are not familiar with, without requesting confirmation.

Increased funding

The increased funding to be made available under Impact 2021 is significant. The newly announced US$90 billion over five years compares with US$41 billion in credit facilities in the 24 years since Afreximbank's creation.

The bank is targeting US$25 billion at intra-African trade by supporting the development of continental supply chains and export manufacturing capacity.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.