The Eastern and Southern African Trade & Development Bank (TDB) is a multilateral, treatybased development financial institution with assets of over $6 billion. It provides trade and project finance to its 22 member states and promotes regional economic integration and sustainable development.
The COVID-19 pandemic resulted in a slowdown of several African economies that have limited fiscal and monetary headroom to stimulate growth and support local businesses. This challenge was compounded by a dearth of supply chain financing for low-income countries (as defined by the World Bank's International Development Association) and fragile conflictaffected countries, which tend to be beleaguered by a number of challenges including foreign exchange constraints, cumbersome non-tariff barriers, and the weak credit quality of buyers and suppliers.
As the Development Finance Institution tasked with addressing the challenges facing businesses and economies in Eastern and Southern Africa, TDB sought a creative solution that would enable it to access competitively priced funding for on-lending in these economies.
Citi worked with TDB and the Multilateral Investment Guarantee Authority (MIGA), a member of the World Bank Group, to structure a Non-Honoring of Financial Obligations by a Regional Development Bank (NHFO-RDB), a new type of credit enhancement that covers the risk of a payment default by a regional development bank under an unconditional financial obligation. By acting as a guarantee, the NHFO-RDB leverages TDB's credit rating, which is higher than that of its individual members, to mobilize long-term funding to countries that would normally be ineligible for such cover.
The pioneering and innovative NHFO-RDB solution has diversified TDB's long-term funding sources and improved its access to international financial markets by facilitating commercial bank financing at longer tenors and lower interest rates than would otherwise be available.
The €334 million facility is now available to TDB for its trade finance business, including financing relating to critical food and fuel. At least €50 million of the facility will be deployed towards supporting imports of equipment, supplies, and construction materials for healthcare facilities addressing the COVID-19 pandemic.