AFRICA – CDC Group Plc, UK’s development finance institution and impact investor, has in October this year, announced a US $75 million risk sharing facility with Absa Group Limited, One of Africa’s largest and most diversified financial services groups.
This is one of CDC’s largest trade finance commitments in Africa and CDC hoped that the enhanced capacity will benefit local businesses and their growth as they take advantage of trade opportunities domestically and internationally.
“We know that by committing US $75 million to Absa, Sub-Saharan Africa’s third largest bank with operations in some of Africa’s most challenged countries, our capital will reach local businesses that need it most,” commented CDC’s CEO Nick O’Donohoe.
The investment is coming at a time when many international banks are currently undergoing a de-risking process, and this has decreased the flow of hard currency to African banks that lend to local businesses to facilitate trade of their goods and services.
In addition, this depressed flow of hard cash has negatively impacted the number of corresponding banking relationships across Africa, weakening the ecosystem on which trade can exist.
According to CDC, the $75 million funded and unfunded facility will help stem this decline by supporting Absa to increase its lines of credit to other banks across Africa.
Subsequently, these banks can increase their trade finance offering to thousands of local business clients.
This facility will also enable Absa to expand its network of local banks, particularly into the harder to reach African markets where trade finance will help fuel economic prosperity, said CDC in a statement.
Absa’s Corporate and Investment CEO, Charles Russon said, “This facility will make a valuable contribution towards alleviating the challenge of managing trade finance risk appetite”.
Critical to advancing trade are the region’s businesses, yet they often face constraints in accessing finance which stagnates their growth, with trade finance a significant challenge with current estimates for Africa’s revealing a trade finance gap of between US$90 billion to $120 billion.
CDC aims to contribute towards addressing a US $90 billion to $120 billion financing gap and bring critical growth finance to businesses across Africa through its partnerships with both international and local banks to boost levels of trade finance to their clients.
So far, CDC has US $775 million commitments in place with four partner banks and have subsequently supported over 1,500 transactions across Africa and South Asia since 2015.