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The Multilateral Investment Guarantee Agency (Miga) is eyeing its second guarantee for a short-term trade-focused loan facility to an African government, following an application by Standard Chartered. 

The €190mn facility, which was outlined by Miga this week and is due for board approval by February 22, would be made available to Senegal’s Ministry of Finance and Budget to provide short-term loans for trade-related payments, mainly in the agriculture sector. 

Miga says the project would help Senegal’s government “unlock trade finance liquidity support for the local agriculture sector, at a time when there are significant liquidity constraints in the trade finance market due to current economic conditions”. 

“The project will provide increased access to trade finance for the agriculture sector which is a key priority under the [Government of Senegal’s] national strategy,” says Miga, a World Bank member mandated to promote cross-border investment in developing markets. 

“The project is also expected to support the overall market financial stability by reducing the liquidity constraints of the local intermediaries for the agriculture sector.” 

The facility has a tenor of up to a year, and can be rolled over if agreed by Miga and Standard Chartered. 

If approved, the deal would be only the second of its kind ever to gain Miga backing, after a €95mn facility provided by South Africa’s Rand Merchant Bank (RMB) to the government of Côte d’Ivoire in May last year. 

In that case, funds are to be used for short-term loans covering trade-related payments, supporting key sectors of the economy including healthcare, infrastructure and agriculture. 

Miga said at the time it would help the West African nation “unlock new liquidity from an existing lender, contributing to maintaining a diversified lending base at a time when private sector players are retreating from core markets”, boosting the availability of trade finance. 

A Miga spokesperson confirms to GTR that such deals are an emerging area of focus for the institution. 

Ben Bechet, co-head of West Africa debt and trade solutions at RMB, says these facilities are breaking new ground in Africa, where lenders have typically focused more on providing governments with term debt for projects, rather than short-term facilities. 

“Treasuries have traditionally made use of Eurobond proceeds, even though that is relatively expensive, or tapping local markets for local currency,” he tells GTR. 

RMB worked with Miga – which has generally provided guarantees for longer-term funding in Africa – for around a year to put in place a framework agreement for that facility, he adds. 

“We deployed the initial facility to the Ministry of Finance for Côte d’Ivoire to assist financing of developmental initiatives and crucial goods such as food, fertiliser and medicines, and it has gained good traction as a test case, to the extent that we’re looking at seeing how we can increase lines to them,” he says. 

Retreating investment and reduced liquidity from some commercial lenders has also created an opportunity to pitch other ideas to the market. 

“We are talking to a couple of sovereigns currently,” Bechet says. “Obviously it’s quite a process to get these facilities off the ground, but we’re excited to bring new liquidity into the sovereign space in Africa, benefiting them with competitive interest rates and a streamlined deal execution process.” 

The trade finance gap in Africa – measured as the difference between demand and supply for financing facilities – is believed to total around US$81bn per year, according to African Development Bank estimates.