The African Development Bank (AfDB) has approved a $4 million trade finance transaction guarantee to support small and medium-sized enterprises (SMEs) and local businesses in Sierra Leone.
This AAA-rated guarantee will provide full coverage for international confirming banks against non-payment risks on ABSL’s trade finance transactions.
The facility will enable ABSL to facilitate the importation of essential consumer goods, including rice, cereals, and cooking oil, which are critical to the country’s key value chains.
Over the next three years, the guarantee is expected to support $36 million in trade transactions, promoting intra-Africa trade in alignment with the Africa Continental Free Trade Area (AfCFTA).
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According to Lamin Drammeh, Head of Trade Finance at the AfDB, this initiative addresses a crucial financing gap, empowering SMEs to actively participate in regional and global trade. “This facility represents a pivotal moment for Sierra Leone’s private sector development, contributing to job creation and improved livelihoods,” Drammeh stated.
Also, Managing Director of ABSL, Ganiyu Sanni, emphasised the importance of the guarantee in expanding trade finance support for critical sectors such as agribusiness and trading of intermediate goods.
The transaction guarantee is part of the AfDB’s suite of trade finance instruments introduced in 2021 to support local banks in Africa. These instruments cover confirmed letters of credit, trade loans, reimbursement undertakings, avalized bills, and promissory notes.
By leveraging its AAA credit rating, the AfDB mitigates country and counterparty risks, enabling local banks to issue trade finance instruments without requiring significant cash margins.
This facility is tailored for African banks facing challenges in securing confirmation lines for letters of credit, ensuring that institutions like ABSL can bolster trade activities and strengthen local economies.
