The African Export-Import Bank (Afreximbank) and the China Development Bank (CDB) have signed a $400 million term loan facility to enhance access to trade finance for small and medium-sized enterprises (SMEs) on the continent.
Afreximbank says it will offer the facility to smaller firms engaged in international and intra-African commerce, as well as those in the productive sectors. Because the facility is provided by the CDB at a comparatively low cost, the organization asserts that it can pass on the financial benefit to end beneficiaries.
The facility has a seven-year maturity and will be distributed directly by the multilateral financial institution headquartered in Cairo or through local financial intermediaries, according to the report.
Afreximbank asserts that African SMEs continue to struggle to gain access to adequate and affordable financing for business expansion.
According to the African Development Bank, the annual disparity between demand and supply for financing facilities in Africa is estimated to be around US$81 billion.
According to research conducted by the United Nations, limited company information, a perception of high risk among lenders, and a lack of digitalisation make it difficult for African SMEs to obtain trade finance at reasonable rates.
The facility, which marks the fourth time CDB has collaborated with Afreximbank, will also strengthen connections between Africa and China, according to Benedict Oramah, president and chairman of the institution’s board of directors.
“It will also enable our two institutions to achieve our respective mandates and developmental outcomes, which include job creation, increased economic activity, and increased extra-African trade with China,” he explains.
Despite the fact that China’s development finance institutions have historically provided substantial assistance to Africa, there are indications that lending has decreased in recent years.
In 2020 and 2021, the CDB and Export-Import Bank of China have committed a total of $10 billion in support, down from more than $37 billion in the preceding two years.