Deutsche Bank has entered into its first partnership with British International Investment (BII), agreeing a US$150mn risk-sharing programme aimed at growing trade finance in Africa’s most challenging markets.
The partnership is formalised through an unfunded master risk participation agreement, with the UK development finance institution providing a backstop to ongoing short-term financing provided by Deutsche Bank across its network of domestic financial institution partners in Africa.
Announced on the sidelines of last week’s GTR Africa event in Cape Town, the partnership will target the continent’s least developed countries as defined by the UN, such as Zambia, Ethiopia and Rwanda.
The gap between the continents’ supply and demand for trade finance is estimated to total at least US$100bn per year, according to the African Development Bank. Liquidity that is available “tends to flow toward larger, lower-risk economies, leaving smaller and more vulnerable markets underserved”, BII said.
It said the programme “will channel more capital and support a greater volume of trade flows into some of Africa’s… hardest to reach markets”.
“Why this is so important is the trend we’ve seen in recent years, where some international banking groups have been retreating from Africa, limiting the amount of funding that is available for trade finance,” said Ndaba Mpofu, managing director and head of financial services debt and trade finance at BII.
“It’s an ongoing struggle,” he told GTR.
Mpofu said some African companies are forced to trade on a cash-covered basis, meaning working capital is “tied up for however long it takes to import a product and get it onto their shelves”.
“Working with a partner to extend financing and help the working capital cycles of the banks and their borrowers is a critical part of enabling them to do more,” he said.
BII’s risk-sharing programmes have supported trade worth more than US$30bn since 2015, but the agreement marks the first such agreement with Deutsche Bank.
Mpofu said there is a “real alignment of interest between what [Deutsche Bank] is trying to do in Africa and our presence and knowledge of the continent, and by partnering we can achieve a lot more in terms of reaching the market with trade finance products”.
Anand Jha, global head of trade finance financial institutions at Deutsche Bank, said the lender plans to make a variety of trade finance products available through the programme.
“We see many banks in frontier markets taking a siloed approach, in that they focus on letters of credit and guarantees,” he told GTR.
“For Deutsche Bank, those products for importing essential commodities are only a starting point, and over time we would like to solve financing requirements of these countries through other more innovative means, such as supply chain finance or ECA-backed financing.”
Jha added that many of Deutsche Bank’s corporate clients “see Africa as the last major long-term growth frontier”.
“For them, Africa is not an immediate one or two-year opportunity, but a strategic market for the next 20 or 30 years,” he said. “When they ask how we can support them in Africa, every market will have its own peculiarities and that is where this partnership comes into play.”