The African Development Bank (AfDB) has approved trade finance facilities worth a combined US$25mn for FSDH Merchant Bank in Nigeria, which the bank will onlend to local small and medium-sized enterprises (SMEs).

The package is comprised of a US$15mn trade finance line of credit and a US$10mn transaction guarantee, which will cover up to 100% of non-payment risks arising from letters of credit (LC) and similar financial instruments issued by FSDH.

According to the AfDB’s director for financial sector development, Stefan Nalletamby, the agreement is expected to catalyse more than US$200mn-worth of trade finance transactions across sectors such as agriculture, manufacturing and energy over the next three and a half years.

The AfDB’s director general for Nigeria, Lamin Barrow, says Covid-19 and other factors have led global banks to reduce or leave their correspondent banking relationships in Africa.

As reported by GTR, the AfDB and the African Export-Import Bank recorded a substantial rise in LC request rejections in the initial phase of the pandemic in Q1 2020 compared to the previous year, with 30% of respondents to a continent-wide survey of commercial banks indicating an increase in rejection rates.

Lenders in Anglophone West Africa reported 50% rejection rates – some of the highest on the continent. The occurrence of LC rejections in this period was most prolific for small banks, with 50% reporting an increase in refusals compared to 20% for larger lenders.

Barrow says: “The availability of trade finance instruments to drive post-pandemic economic recovery efforts cannot be overemphasised. Hence, the bank’s financing will help eligible Nigerian SMEs take advantage of existing and emerging opportunities in domestic and regional markets.”

The AfDB says the recent facility aligns with its financial sector development policy and strategy to deepen Africa’s financial systems. It also aligns with two of the bank’s strategic priorities, namely ‘Feed Africa’ and ‘Industrialise Africa’.