AfDB Approves $40 Million Risk Cover for Dashen Bank to Boost Trade Finance

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The African Development Bank Group (AfDB) has granted a significant boost to Dashen Bank, Ethiopia’s oldest and second-largest privately-owned bank, with a $40 million transaction guarantee facility. This facility is designed to support and enhance Dashen Bank’s trade finance capabilities, particularly for Small and Medium-Sized Enterprises (SMEs) and local corporates engaged in import and export activities.

Key Details

  • Transaction Guarantee Facility: AfDB will provide up to 100% guarantee coverage for the non-payment risk associated with Letters of Credit and similar trade finance instruments issued by Dashen Bank.
  • Purpose: The facility aims to mitigate risks in trade finance and facilitate smoother cross-border transactions, benefiting SMEs and local businesses by making trade finance more accessible and secure.

Statements from Key Figures

  • Asfaw Alemu, CEO of Dashen Bank: “This much-needed guarantee facility will be instrumental in expanding our bank’s trade services across the region and beyond.” Alemu highlights the strategic importance of this support for the bank’s trade operations.
  • Nnenna Nwabufo, AfDB’s Director General for East Africa: “Trade finance is an important driver of economic growth and is critical for cross-border trade, particularly in emerging markets. We are delighted to work with Dashen, a strong partner with extensive knowledge and network in Ethiopia, on a shared ambition to support the region’s trade.”

Recent Developments and Support

  • Additional Support: In August 2023, Dashen Bank received a commitment of $20 million from FMO (Dutch entrepreneurial development bank), British International Investment, and the Development Finance Institution (DFI). This support was aimed at agriculture and foreign exchange, further bolstering the bank’s financial capabilities.
  • Partnerships: Dashen Bank has also signed a separate deal with the International Finance Corporation (IFC), a member of the World Bank Group, to enhance its credit facilities for Micro, Small, and Medium Enterprises (MSMEs).

Financial Performance

Dashen Bank recently reported ETB 6.6 billion in profits, reflecting its strong financial performance. The bank has also been active in key economic decisions, including leading the recent move to float the Ethiopian Birr, which resulted in a rapid devaluation of the currency.

Implications and Benefits

  1. Enhanced Trade Finance: The AfDB guarantee will help Dashen Bank mitigate risks associated with trade finance, making it easier for SMEs and local businesses to engage in international trade.
  2. Economic Growth: By supporting trade finance, this facility contributes to broader economic growth in Ethiopia and the East Africa region, fostering better trade opportunities and business expansion.
  3. Regional Impact: With this support, Dashen Bank is positioned to strengthen its trade finance services, potentially impacting regional trade dynamics and improving access to international markets for Ethiopian businesses.

READ:African Central Banks and the Strategic Role of Gold Reserves

Conclusion

The African Development Bank’s approval of the $40 million transaction guarantee facility marks a significant development for Dashen Bank and the broader Ethiopian economy. By addressing the risks associated with trade finance, the facility will play a crucial role in supporting SMEs and local corporates, driving economic growth and enhancing Ethiopia’s trade capabilities. This initiative underscores the AfDB’s commitment to fostering regional trade and economic development through strategic financial support.

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