IFC and Proparco today signed a risk-sharing agreement covering a package of trade finance operations worth a joint USD 200 million. As part of this deal, Proparco will now participate up to 50% in certain GTFP (Guaranteed Trade Finance Program) exposures of IFC, on the African continent. The first phase of this operation is aimed in particular at strengthening food security in a number of countries in Africa. In a second phase, Proparco and IFC will extend their joint action to other regions of the continent. The initiative could ultimately mobilize 500 million dollars.
This initiative is part of the Alliance for Entrepreneurship in Africa, in which Proparco and IFC are joining forces to provide a concrete response to the challenges of food security in Africa, while at the same time supporting the development of African SMEs, a decisive vector for economic growth and job creation. To achieve these two key objectives for the continent’s resilience – given the significant deficit in trade finance in Africa – trade finance tools appear to be an effective lever, particularly in these inflationary times.
The partnership also includes a training component designed specifically for SMEs to enable them better to use the trade finance tools essential to the secure development of their import/export activities. A second component is dedicated to consolidating banks’ practices in the fight against money laundering and the financing of terrorism, a key issue for IFC and Proparco.
This project is also in line with the priorities set by Proparco as part of its 2023-2027 strategy “Acting together for greater impact“, one of the three cornerstones of which is to support the resilience of local economies in the most vulnerable contexts.
Sérgio Pimenta, IFC Vice President for Africa, said: “The signing of today’s agreement between IFC and Proparco, part of our ongoing collaboration in the context of the Alliance for Entrepreneurship in Africa, marks a significant milestone in our joint efforts to address the trade finance gap in Africa. This project will have positive impacts on the development of African exporters and importers and their potential to create jobs, contribute to economic growth, and ensure food security on the continent.”
Françoise Lombard, Chief Executive Officer of Proparco, said: “We are very pleased to be partnering with IFC, a leading provider of trade finance guarantees. This operation is in line with the goals of the Alliance for Entrepreneurship in Africa, as it will make it easier for SMEs to import essential goods and basic foodstuffs into Nigeria and Madagascar”.
IFC’s Global Trade Finance Program (GTFP) facilitates the trade finance transactions between confirming banks and issuing banks in emerging markets, by offering confirming banks partial or full guarantees covering payment risk on issuing banks. Since 2005, GTFP has issued over 83 000 guarantees for more than US$88 billion in 100 emerging markets. The program has onboarded more than 450 issuing banks since inception. In Africa, IFC has onboarded over 120 banks in 37 countries historically, and committed US$23 billion by issuing more than 15 000 guarantees.
IFC and Proparco have established a Risk Distribution Partnership, under which Proparco will risk-participate in 50 percent of certain IFC’s GTFP exposures in selected Sub-Saharan African countries for up to US$500 million. The first tranche of US$200 million will be focused on food security. When possible, IFC will prioritize intra-Africa trade exposures under the Risk Distribution Partnership. The Partnership will allow IFC and Proparco to increase access to sustainable trade finance in the region by supporting trade transactions, which will be aligned with Building Blocks 1 and 2 under IFC’s Paris Alignment Framework for financial intermediaries.
Trade finance training and technical assistance for local financial institutions are integral tools to help these institutions develop trade finance and other banking skills. In addition, meeting specific transparency standards, such as detecting trade-based Money Laundering (TBML), is vital to maintaining trade and financial relations with the global markets, notably through CBRs. IFC and Proparco intend to each secure funding to expand IFC’s current training and capacity-building programs of African financial institutions.
Trade finance training programs for SMEs have seen considerable interest in low-income, fragile, and vulnerable economies, where companies are subject to the highest rejection rates when requesting trade finance.
IFC’s and WTO’s study “Improved Access to Affordable Trade Finance” could increase exports and imports by up to $26 billion annually in West Africa. Through this agreement, Proparco will contribute to IFC-WTO’s joint training programs for SMEs, increasing their understanding of trade products, unlocking their full potential, and contributing to economic growth.