British International Investment and Deutsche Bank have launched a $150 million risk-sharing programme designed to expand trade finance into some of Africa's most capital-starved frontier markets, marking BII's first risk-sharing agreement of this kind with the German lender. The programme will draw on Deutsche Bank's network of financial institution relationships across 42 African countries.
A STRUCTURAL APPROACH TO THE GAP
The programme operates through a Master Risk Participation Agreement, an unfunded arrangement under which BII provides a backstop to ongoing short-term trade financing that Deutsche Bank extends to its partner financial institutions in Africa. BII said the programme will "channel more capital and support a greater volume of trade flows" into some of Africa's hardest-to-reach markets.
Africa's trade finance gap is estimated at approximately $100 billion annually, according to the African Export-Import Bank. The partners said the programme is intended to help African businesses import essential commodities and machinery. BII said available liquidity "tends to flow toward larger, lower-risk economies, leaving smaller and more vulnerable markets underserved".
FRONTIER FOCUS ON LEAST DEVELOPED ECONOMIES
"Strengthening trade finance is vital for facilitating the movement of essential goods and commodities in our markets," said Ndaba Mpofu, managing director and head of financial services debt and trade finance at British International Investment. The facility will primarily target United Nations-designated least developed countries in Africa, with Zambia, Ethiopia, and Rwanda among the initial focus markets.
Anand Jha, global head of trade finance, financial institutions, at Deutsche Bank, said the partnership "enhances our risk sharing capacity and strengthens our ability to facilitate sustainable cross-border transactions". Jha told Global Trade Review that "every market will have its own peculiarities and that is where this partnership comes into play".
DFI-COMMERCIAL BANK MODEL
Mpofu told Global Trade Review the programme responds to a trend "where some international banking groups have been retreating from Africa, limiting the amount of funding that is available for trade finance". BII's risk-sharing programmes have supported trade worth more than $30 billion since 2015, according to GTR.
Jha said Deutsche Bank plans to offer a range of trade finance products through the programme, starting with instruments for importing essential commodities and, over time, supply chain finance and ECA-backed financing.