The African Development Bank (AfDB) has concluded a $500 million credit insurance deal to protect it against the non-payment of loans made to about 30 African financial institutions.
The deal with African Trade Insurance Agency (ATI) covers a portion of the banks’ portfolio of non-sovereign operations in Africa.
It is hoped that the insurance plan will encourage similar institutions to invest more on the continent in the future.
While ATI will be the direct insurer for the AfDB, the transaction involves the participation of a number of Lloyd’s & Company private reinsurers.
Lloyd’s will share the risk on African financial institutions.
The deal will enable many insurance companies operating outside Africa to participate in the financing of development in Africa for the first time.
It is the second Balance Sheet Optimization transaction under the Room to Run initiative of the AfDB, following the successful signing of the Synthetic Securitization transaction in September.
The insurance will cover approximately 22% of the Bank’s US$2.3 billion outstanding non-sovereign financial sector portfolio.
This transaction leverages the Bank’s own capital to achieve more development and lending as it creates new pathways for collaboration between private insurers and the Bank in the development of the African continent, said Akinwumi Adesina, President of the African Development Bank Group.
This is a significant step towards enhancing Africa’s finance partnerships across the globe.
Adesina added that, given Africa’s endowment as a resource-rich continent with a strong economic outlook, the Bank had adopted more efficient and effective initiatives to bridge the existing development financing gaps.
At the launch of the transaction in London, Penny Mordaunt, International Development Secretary said: This is a great example of how the City of London can partner with African institutions to mobilise more investment for developing countries and support the creation of the 18 million new jobs a year which Africa needs.
This work is driving economic development abroad and supporting prosperity at home, he said.
The transaction is also expected to strengthen the development of credit insurance markets in Africa.
The experience and comfort gained in transferring risks between the African Development Bank, the African Trade Insurance Agency and the Lloyd’s reinsurers is expected over time to lead to the lengthening of insurance terms and lower insurance and financing costs, leading to more trade and investment in, and among, the private sector and the African region.
With ATI’s insurance guarantees leveraging the balance sheet of AfDB and crowding-in new investments, this innovation provides a timely solution to the scarcity of trade finance that could create enormous impact across the continent.
ATI’s commitment reflects the US$35 billion worth of trade and investments that we have supported in the past decade, which, thanks to this model, can now be more easily replicated, to the ultimate benefit of Africa said George Otieno, Chief Executive Officer of ATI.
Source: Voice of Nigeria