The board of directors of the African Development Bank (AfDB) has approved an unfunded €40-million risk participation agreement (RPA) with French bank and financial services company BNP Paribas to support trade finance activities in Africa.

The 50:50 risk sharing facility would broaden the availability of trade finance across Africa over a three-year period by targeting small and medium-sized enterprises and indigenous firms in vital economic sectors such as agriculture and manufacturing.

BNP Paribas would match the AfDB’s undertaking in every transaction, thereby creating a portfolio of up to €80-million; however, including rollovers, the facility was expected to facilitate about €500-million trade in intermediate and finished goods, raw materials and equipment to support the continent’s economic growth.

The AfDB explained that the majority of African banks had weak capital bases, which constrained their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that could have substantial development impact.

“[However], AfDB’s additionality lies in the use of its ‘AAA’ rating to share trade risk with BNP Paribas and enhance the trade finance capacity of African banks and financial institutions, thereby, expanding trade and strengthening regional integration,” the AfDB said.