The African Development Bank (AfDB) has approved two unfunded risk participation agreements (RPAs) with two French banks to support the trade financing activities of African issuing banks.

The AfDB agreed a US$50mn RPA with the Union de Banques Arabes et Franҫaises (UBAF) on May 7 after approving a €40mn RPA with BNP Paribas (BNPP) on April 30.

Both RPAs follow a 50-50 risk sharing structure aimed at broadening the base of available trade finance in Africa over a three-year period by targeting SMEs and local companies.

UBAF will match the AfDB’s undertaking, creating a portfolio of up to US$100mn. Likewise, BNPP will match the AfDB creating a portfolio of up to €80mn.

The RPAs are expected to facilitate approximately US$600mn and €500mn of trade respectively: in intermediate and finished goods, raw materials and equipment to support Africa’s economic growth.

The agreements aim to address a critical demand for commercial trade financing in Africa. Important economic sectors like agribusiness and manufacturing will be targeted, engendering financial sector development and greater regional integration.

Most African issuing banks have restrictive capital bases that limit their ability to access trade finance for large projects that typically have substantial developmental impact. With an AAA credit rating, the AfDB is well-placed to share risk with international lenders to enhance the financing capacity of African banks.