The Trade Finance Program (TFP)
In addition to financing activities, the TFP will also link the Bank’s efforts to: (i) facilitate trade by reducing/removing cross-border obstacles that currently constrain and increase the risks that undermine trade, (ii) build the regulatory capacity of governments, and (iii) undertake the upstream work of building capacity of the client institutions to manage risk and enhance access to trade finance.
The Trade Finance Program (TFP) is the successor to the Bank’s Trade Finance Initiative (TFI) that was launched in 2009 in response to the 2008/09 financial crisis. Encouraged by the success of the TFI and cognizant of Africa’s large and growing trade finance needs, the Bank is in the process of establishing a USD1 billion trade finance program to take its intervention beyond crisis response and consolidate its position as a major provider of trade finance on the continent. The TFP brings the Bank in step with other Multilateral Development Banks (MDBs) who all have been operating trade facilitation programs for nearly a decade on average.
The TFP has the dual objective of addressing the shortage of trade finance for African corporates and SMEs by providing both funded and non-funded solutions; and providing rapid response, countercyclical support whenever normal trade finance facilities are constrained. At the outset the Program will offer three distinct but related products, namely: Risk Participation Agreement (RPA); Trade Finance Line of Credit (TFLOC); and Commodity Finance Facility (CFF).
Under the RPA, AfDB would share the credit risk (usually up to 50% of a transaction) on a portfolio of eligible trade transactions originated by local banks and confirmed by international confirming banks. The product is designed to provide partial cover to regional and international commercial banks for assuming the credit risk of local banks who issue documentary letters of credit and similar trade instruments. The RPA is an unfunded facility and the Bank’s direct counterparties are the confirming banks. TFLOC will be provided directly to local banks for the financing of exclusively trade-related transactions in Africa, while the CFF will provide direct support to commodity aggregators such as commodity boards for the financing of the export and import of agricultural commodities and inputs.