AfDB launches Transaction Guarantee for trade transactions in Africa

Transaction Guarantee is designed to provide up to 100% cover for non-payment risk to regional and international banks, for trade transactions initiated by local banks in Africa. The guarantee will cover an array of trade finance instruments, including confirmed letters of credit, trade loans, irrevocable reimbursement undertakings, avalised bills, and promissory notes.

The new instrument will provide opportunities for local financial institutions to build relationships with international correspondent banks, increase links to a global network of trade finance partners and reduce the need for cash collateral, thereby increasing access to finance for SMEs across the continent. This intervention is therefore strongly aligned with the Bank’s High 5s and its financial sector development strategy. whose main priorities are to broaden and deepen Africa’s financial systems by putting finance at the centre of the continent’s productive capacity.

Trade remains an important driver of Africa’s social and economic development despite the persistently huge trade finance gap. This is mostly due to a lack of liquidity and risk mitigation facilities across the continent and has been exacerbated by recent market developments, such as increased banking regulations and global shocks like the COVID-19 pandemic.