Africa Finance Corporation, (AFC) the pan-African development finance institution, said it agreed to share $1 billion of risk on trade finance with Munich Re.
Under the accord, Lagos-based AFC and the German multinational insurer will cover risk on letters of credit, trade loans and trade guarantees for 38 financial institutions in 11 African countries. The agreement may be expanded at a later stage.
AFC is one of a number of DFI’s globally that’s seeking to shift some of the risk on the loans it makes to private investors to allow it do more with its available resources.
“We have retained some of the risk as AFC, and then they’re taking some, and then they will distribute it among their partners,” Samaila Zubairu, the AFC’s president and chief executive officer, said in an interview. “It gives us capacity to do more.”
While Munich Re has shared risk on AFC loans on a transaction-by-transaction basis since 2018, the new program has pre-agreed risk parameters and limits so that the Germany-based firm will take a share of eligible transactions concluded by the African institution automatically.
The money used to cover the transactions will be recycled as they mature and further institutional investors may be brought in as funders or risk partners, Wola Asase, AFC’s deputy director and head of syndications, said in a statement.
The agreement has been concluded as African countries try to put the African Continental Free Trade Area agreement into effect to boost intra-African trade.
Africa Finance Corporation (AFC) reported a 24.5% increase in first-half profit to $325.2 million, supported by higher net interest income and gains on financial assets, as the infrastructure financier expanded its balance sheet toward the $20 billion mark.
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