The African Development Bank (AfDB) said Wednesday it has approved a 25-million-U.S. dollar loan to reduce the trade finance gap in Nigeria by making financial resources available to small and medium-sized enterprises (SMEs).
In a statement, the bank said it had approved a 15-million-U.S. dollar trade finance line of credit and a 10-million-U.S. dollar transaction guarantee for the FSDH Merchant Bank in Nigeria, to provide loans to local enterprises.
Under the guarantee portion, the AfDB will also guarantee up to 100 percent of non-payment risks arising from letters of credit and similar trade finance instruments issued by FSDH.
According to the AfDB, this will allow confirmation of trade transactions originated by FSDH, benefiting local import and export businesses.
Overall, the facility will catalyze over 200 million dollars of trade finance transactions across multiple sectors, including agriculture, manufacturing, and energy over the next three years.
“The availability of trade finance instruments to drive post-pandemic economic recovery efforts cannot be overemphasized,” said Lamin Barrow, the bank’s director general for Nigeria, in a statement.
The bank estimates the trade finance gap for Africa at 82 billion dollars. SMEs and other domestic firms have greater difficulty accessing trade finance than multinational and large local companies.
Barrow said the COVID-19 pandemic and other factors had led global banks to reduce their correspondent banking relationships in Africa or to exit completely.