A $20 million Trade Finance Facility Agreement has been signed between the African Development Bank (www.AfDB.org/en) and FSDH Merchant Bank to provide support to small and medium-sized enterprises in Nigeria’s manufacturing and industrial sectors.
The facility is made up of a $5 million Transaction Guarantee to facilitate the confirmation of FSDH’s trade finance transactions and a $15 million Trade Finance Line of Credit to support SMEs and indigenous corporates.
The African Development Bank would guarantee up to 100% of the non-payment risks from trade finance instruments, such as letters of credit and similar instruments, issued by FSDH under the Transaction Guarantee, for the benefit of local import and export enterprises, for the $20 million facility that FSDH has access to.
The facility is expected to spark more than $200 million in trade finance deals over the course of the next three years across a number of industries, including manufacturing, energy, and agriculture.
Lamin Barrow, the Director General of the African Development Bank’s Nigeria Country Department, who signed the agreement, stated that it was evidence of the Bank Group’s dedication to bridging Nigeria’s trade financing gap by collaborating with strategic partners like FSDH to offer vital support to SMEs.
“Some of the major reasons banks in Nigeria do not finance trade finance requests from their clients have been identified as inadequate access to foreign exchange and a lack of sufficient correspondent banking lines of credit,” Barrow stated. For the benefit of SME and regional corporate importers and exporters, the African Development Bank created a special Trade Finance Program in 2013 to give financial institutions in Africa vital liquidity and risk mitigation support.
He claimed that the Bank Group has facilitated over $10 billion in commerce and helped over 120 financial institutions in 30 African nations during the past ten years.
In her signature, FSDH Managing Director/CEO Bukola Smith expressed gratitude to the Bank for granting the credit. She declared that priority will be given to women-owned enterprises when funding is distributed.
“We have been looking forward to receiving this financing,” she continued. We pledge to make good use of this facility, as we did with the first one we got from the African Development Bank, as it will enable us to expand our company and serve our clients’ requirements, including those of women-owned businesses.
In order to support 60 beneficiaries for over 370 trade transactions valued at $375 million in terms of volume traded in critical sectors like energy, agribusiness, and health, as well as to promote intra-African trade, the African Development Bank extended a $50 million Trade Finance Line of Credit to FSDH in 2016.
The World Trade Organization and IFC estimate Nigeria’s annual trade deficit at $7 billion, while the Bank values Africa’s yearly trade finance at $81 billion. The challenge of limited access to trade credit is affecting SMEs and other domestic businesses.
The current portfolio of the African Development Bank in Nigeria consists of 48 projects with a combined value of $4.4 billion. It includes 24 commercial sector operations valued at $1.9 billion and 24 governmental sector initiatives totaling $2.5 billion.