Africa Finance Corporation (AFC) and German reinsurer Munich Re have launched a $1 billion risk-sharing programme aimed at expanding trade finance for African banks, as financial institutions across the continent face constraints in funding imports and exports.
The programme will initially cover 38 financial institutions across 11 African countries, providing risk-sharing support for eligible trade finance operations, including commercial letters of credit, trade loans and guarantees, AFC said in a statement.
Rather than providing $1 billion in direct cash payments to banks, the initiative allows Munich Re to assume a share of the risks associated with eligible transactions financed by AFC. The arrangement is designed to expand lending capacity while enabling AFC to use its capital more efficiently.
Under the agreement, AFC and Munich Re have established risk limits and eligibility criteria in advance. This allows Munich Re to participate automatically in qualifying transactions, reducing the need to negotiate risk-sharing arrangements individually for each deal.
AFC will retain part of the risk on every transaction, ensuring that both institutions remain exposed to potential losses.
The programme covers transactions with maturities of up to 12 months. As these transactions mature, the associated risk-sharing capacity becomes available for new operations, allowing the mechanism to support successive rounds of trade financing.
The initiative comes as African banks seek additional liquidity to finance commercial exchanges within the continent and with international markets.
Letters of credit, trade loans and guarantees are key instruments used by banks to help businesses pay suppliers, secure transactions and move goods across borders. Limited financing capacity can constrain companies' ability to import essential goods, purchase equipment or expand into new markets.
The programme also forms part of AFC's broader strategy to attract institutional investors and expand financing beyond what it can provide through its own balance sheet.
Banji Fehintola, AFC's executive board member and head of financial services, said the scale of Africa's financing needs required approaches that go beyond traditional lending models.
The broader Managed Debt Mobilisation Programme is designed to allow other investors to participate by providing funding or sharing transaction risks. AFC said it was in discussions with additional African and international institutional investors about joining the platform.
For Munich Re, the agreement builds on a partnership with AFC that began in 2018, when the reinsurer started sharing risks on individual AFC loans. The new programme replaces that transaction-by-transaction approach with a standing framework.
Herbert Müller, Munich Re's head of global credit solutions, said the arrangement would allow the two institutions to support African financial institutions more efficiently and at greater scale.
By distributing part of the financial risk among different institutions, the programme could help AFC support transactions that might otherwise exceed its risk limits. This could increase the availability of financing for businesses involved in domestic, regional and international trade.
The initiative could also support efforts to deepen economic integration under the African Continental Free Trade Area, which aims to increase trade between African economies.
However, the programme's ultimate impact will depend on the volume of transactions financed, the number of participating banks that use the facility and the extent to which the additional capacity translates into financing for businesses.
The agreement represents a shift towards structured risk-sharing as a tool for expanding trade finance, with AFC and Munich Re seeking to use their combined financing and risk-management capabilities to support commercial activity across Africa.