AfDB, FSDH Merchant Bank sign deal for $20 mn trade finance in Nigeria
Over the next three years, the facility will catalyze more than $200 million of trade finance transactions.
Bukola Smith, Managing Director, FSDH Merchant Bank (left) and Lamin Barrow, Director General, African Development Bank Nigeria Country Department, display copies of the signed Trade Finance Facility Agreement in Lagos. Photo credit: AfDB
The African Development Bank (AfDB) has signed a $20 million Trade Finance Facility Agreement with FSDH Merchant Bank to support small- and medium-sized businesses in Nigeria's industrial and manufacturing sectors.
The facility consists of a $15 million Trade Finance Line of Credit to support SMEs and indigenous corporates and a $5 million Transaction Guarantee to support the confirmation of FSDH’s trade finance transactions.
For the $20 million facility availed to FSDH, the African Development Bank will guarantee up to 100% of non-payment risks from letters of credit and similar trade finance instruments issued by FSDH under the Transaction Guarantee for the benefit of local import and export businesses.
It is estimated that over the next three years, the facility will catalyze more than $200 million of trade finance transactions across several sectors, including agriculture, manufacturing, and energy.
Signing the agreement, Lamin Barrow, African Development Bank’s Director General, Nigeria Country Department, said the arrangement was a testament to the Bank Group’s commitment to help plug Nigeria’s trade finance gap by working with strategic partners like FSDH to provide critical support to SMEs.
Barrow said: “Lack of sufficient correspondent banking lines of credit and inadequate access to foreign exchange have been identified as some of the major reasons banks in Nigeria do not finance trade finance requests from their clients. That is why the African Development Bank established a dedicated Trade Finance Program in 2013 to provide critical liquidity and risk mitigation support to financial institutions in Africa for the benefit of SME and local corporate importers and exporters.”
He said over the last decade, the Bank Group has supported more than 120 financial institutions in 30 African countries and catalyzed over $10 billion of trade.”
FSDH Managing Director/CEO Bukola Smith, who signed for her side, thanked the Bank for providing the facility. She said women-owned businesses would be given priority when funds are disbursed.
She added: “We have been looking forward to receiving this financing. Just like we did with the first facility we received from the African Development Bank, we promise that this one will be well utilized because it will help us grow our business and meet the needs of our clients, including women-owned enterprises.”
The African Development Bank extended a $50 million Trade Finance Line of Credit to FSDH in 2016, which supported 60 beneficiaries for over 370 trade transactions valued at $375 million in terms of volume traded in critical sectors, including energy, agri-business and health, and boosted intra-African trade.
The Bank estimates Africa’s annual trade finance at $81 billion, and the World Trade Organization and IFC estimate the annual gap in Nigeria at $7 billion. SMEs and other domestic firms are grappling with a lack of access to trade finance.
The African Development Bank’s active portfolio in Nigeria comprises 48 operations valued at $4.4 billion. It covers 24 public sector projects amounting to $2.5 billion and 24 private sector operations valued at $1.9 billion.