Established in February 2013, the AfDB’s Trade Finance Program (TFP) is the successor to the Trade Finance Initiative (TFI) which was launched in 2009 in response to the global financial crisis.
The total size of the TFP is USD 1 billion for an initial period of 4 years. The program seeks to reduce the trade finance gap in Africa by “crowding in” global banks and strengthening local Africa Financial Institutions that are critical to the promotion of trade on the continent. To this end, greater emphasis is placed on the promotion of regional integration and intra-Africa trade.
The TFP offers a wholesale approach to trade finance through the provision of risk mitigation facilities and liquidity support. The bulk of the operations are targeted at low-income countries, African local banks, Small and Medium Enterprises in critical sector in the agriculture/agribusiness, light manufacturing and intermediate/capital goods in regional member countries.
The TFP consists of three main products.
Risk Participation Agreement (RPA)
These are arrangements under which confirming banks and the African Development Bank share the default risk of a portfolio of trade finance transactions. The RPA is designed to give regional and international confirming banks partial cover for their trade finance operations in Africa, with the AfDB typically taking a 50 per cent share of the risk.
Trade Finance Line of Credit (TFLOC).
These are short term lines of credit, offered to African financial institutions to facilitate their own trade finance operations. The AfDB seeks to support financial institutions with a strong focus on developing trade finance. Proceeds from TFLOC enable financial institutions to extend credit support to SMEs operating in either the import or export sectors of the economy.
Soft Commodity Finance Facility
This is a funded trade finance product targeted at commodity aggregators and export marketing agencies for soft and agri-based commodities, such as cocoa and coffee .These organizations, which deal directly with farmers, use SCFF loans to support the agri-commodity supply chain at the grassroots level, leading for example to the increased presale of produce.