The African Development Bank (AfDB) has approved a US$7 million trade finance transaction guarantee facility for NBS Bank in Malawi to support local businesses.

Launched in 2021, the transaction guarantee facility backs several trade finance instruments, including letters of credit (L/Cs), trade loans, irrevocable reimbursement undertakings and promissory notes.

Facility outline

Through the transaction guarantee facility, AfDB leverages its 'AAA' rating to mitigate country risk. It provides up to 100 per cent non-payment risk cover to confirming banks for trade finance transactions of eligible Africa-based issuing banks.

By covering up to 100 per cent non-payment risk, the facility enables AfDB to cover low-income countries and transition states, where correspondent banks have limited risk appetite.

For L/C issuing banks

The facility is purposely tailored to the needs of L/C issuing banks that may otherwise be compelled to require that clients provide cash margins for their L/Cs or have used up their L/C confirmation lines with correspondent banks.

It is available to all banks registered and operating in Africa who pass the AfDB's due diligence process.

NBS facility

The facility for NBS Bank will provide a 100 per cent guarantee to international confirming banks for the non-payment risk taken on NBS' trade finance transactions conducted on behalf small- and medium-sized enterprises, local corporates, and women-led businesses in Malawi.

It will enable NBS to support imports of fertiliser, medical supplies, and other strategic commodities and is expected to support about US$40 million of trade over the next three years.

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