The African Development Bank (AfDB) has approved a US$25 million trade finance Transaction Guarantee Facility (TGF) that includes letter of credit (L/C) support for Bank of Africa Madagascar (BAM), and aims to accelerate the island's industrialisation and support local businesses.

The three-year facility represents a comprehensive approach to supporting Madagascar's economic development, specifically focusing on large local businesses and SMEs, including those led by women.

Critical sector support

"This guarantee will enable the bank to provide up to 100 per cent coverage for confirming banks to facilitate the confirmation of L/Cs and similar trade finance instruments issued by BAM," according to the AfDB's head of trade finance, Lamin Drammeh, who emphasises the importance of the agreement.

The guarantee targets critical sectors such as agroindustry and light manufacturing, enabling the import of essential inputs, production machinery, and telecommunications equipment. The operation will also help improve food and nutritional security.

TGF history

The AfDB's TGF supports projects with minimal climate risks and low greenhouse gas emissions. The facility covers a range of financial instruments, including confirmed L/Cs, business loans, irrevocable reimbursement undertakings, endorsed drafts, and promissory notes.

Since its launch in 2021, the facility has been a crucial tool for supporting commercial banks across Africa.

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