The African Development Bank (AfDB) will soon announce a partial credit insurance deal with the African Trade Insurance Agency (ATI) to share the default risks on the about thirty loans granted to commercial banks and other financial institutions in Africa.

The operation amounts to $500 million in its loan portfolio and, thanks to it, the AfDB will be able to increase its operational capability.

Indeed, when banks grant a loan, they must use part of their funds to insure themselves against default risks. By sharing the risk with ATI, AfDB will be able to mobilize additional funds and channel them towards other projects. The African Trade Insurance, which is also a multilateral institution, is a bit like World Bank’s Multilateral Investment Guarantee Agency (MIGA) even though its portfolio was only worth $2.68 billion at the end of 2017.

With this initiative, the African Development Bank is implementing a financial structuring plan for its investments. According to corroborative sources, the African multilateral bank that wishes to boost financial markets in the region was considering the possibility of securitizing its loans and selling them on secondary markets. For the time being, it has chosen a credit insurance deal.

Idriss Linge