The African Development Bank (AfDB) has approved an unfunded US$100mn Risk Participation Agreement (RPA) for Sumitomo Mitsui Banking Corporation Europe (SMBCE) to support issuing banks in Africa expand their trade finance operations.

The RPA gives SMBCE greater comfort in taking more risk on local African banks and providing them with increased trade finance facilities. It is expected to run over three years, as a 50/50 risk-sharing arrangement where SMBCE will match AfDB’s undertaking in each transaction, and will create a maximum trade finance portfolio of up to US$200mn at any one time.

Counting rollovers, it is expected that the facility will support more than US$1.2bn of trade in Africa over the three-year tenor in sectors such as agriculture and manufacturing, in an effort to address critical market demand for trade finance on the continent. According to an AfDB statement, it will also foster financial sector development and regional integration, and contribute to government revenue generation.

AfDB’s financial sector development director, Stefan Nalletamby, says, “We consider SMBCE to be a natural strategic partner for supporting the AfDB’s development mandate, initially starting with this intervention within the trade finance space. Going forward, we foresee a huge opportunity to build on this solid foundation by extending our partnership with SMBCE to other sector operations of the bank in areas such as energy, agribusiness and infrastructure in the medium term.”

This will be the AfDB’s first RPA with a major Japanese financial institution.