The African Development Bank (AfDB) has approved a US$10 million trade finance transaction guarantee for Banco Fomento de Angola (BFA).

Under this facility, AfDB will provide up to 100 per cent guarantee to participating banks for the non-payment risk arising from the confirmation of letters of credit (L/Cs) and similar trade finance instruments issued by BFA.

SME benefits

Established in 2002, BFA is one of Angola's largest financial institutions with a significant countrywide reach of operational branches.

The transaction guarantee facility aims to leverage BFA's strategic footprint in Angola, with guarantees providing support for small- and medium-sized enterprises (SMEs), including women-led businesses.

The move aims to facilitate the import and export trade finance requirements of SMEs and, by extension, strengthen the Angolan credit market.

Trade finance gap

The facility also aims to narrow Africa's trade finance gap, which the AfDB reckons to be around US$81 billion annually.

Compared to multinational corporates and large local corporates, the AfDB says SMEs and other domestic firms have greater difficulty in accessing trade finance.

The transaction guarantee is one of the strategic tools that the development bank deploys to help reduce the continent's trade finance gap.

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