South Africa’s Standard Bank has secured two facilities worth a combined US$400mn from the African Development Bank (AfDB) to support financing for SMEs on the continent.

The first is a three-year US$200mn trade finance risk participation agreement, which will “enable the scale up of trade finance support to local banks” in Africa, including in low-income countries and transition states, according to the AfDB. These funds will then be lent to SMEs in local communities.

The AfDB’s risk participation agreements typically cover up to 50% of credit risk for lenders.

The other facility is a R3.6bn (US$200mn) investment in a social bond issued by Standard Bank Group. It will be listed on the Johannesburg Stock Exchange, and proceeds will go to support SME lending initiatives under the bank’s sustainable finance framework.

The funding will be used to target projects across one or more of seven impact areas, including African trade and investment, financial inclusion and climate change mitigation, as outlined in the framework.

Standard Bank Group’s deputy CEO Kenny Fihla says in a press release that the bond will have a particular focus on financial inclusion for South African SMEs.

“This partnership between the African Development Bank and Standard Bank Group exemplifies our commitment to driving sustainable economic growth in Africa,” says Solomon Quaynor, AfDB vice-president for private sector, infrastructure and industrialisation.

“By supporting SMEs and fostering inclusive financial solutions, we are taking significant steps towards achieving our vision of a prosperous continent where every individual has the opportunity to thrive.”

According to a document outlining the deal released by the AfDB on December 17, the package was also agreed to “enable increased risk capital appetite” for lending to SMEs, which has been weakened in the South African banking sector in recent years due to “multiple shocks”.

SMEs in Africa consistently struggle to access trade finance due to a lack of financial documentation and high borrowing costs driven by perceived risk. The total trade finance gap on the continent was estimated at US$81bn a year in 2019.

These facilities are part of a plethora of deals this year aimed at closing the gap, including a US$15mn facility from AfDB to Zimbabwe’s First Capital Bank and a product that releases liquidity from local government bonds to finance SMEs.