AFC and Munich Re establish US$1bn trade-finance risk-sharing programme across Africa

Africa Finance Corporation (AFC) and Munich Re have agreed a US$1bn trade-finance risk-sharing programme designed to expand lending capacity for African financial institutions, with an initial phase covering 38 institutions across 11 countries.

The agreement establishes an Unfunded Managed Debt Mobilisation Programme under which Munich Re will provide committed risk-sharing capacity for eligible trade-finance transactions originated by AFC.

Unlike a conventional funded loan, the arrangement does not involve Munich Re immediately advancing US$1bn in cash. Instead, the reinsurer assumes an agreed portion of the credit risk associated with qualifying transactions, enabling AFC to manage its exposure while extending additional financing.

The first phase covers commercial letters of credit, trade loans and trade guarantees, with eligible transactions carrying maturities of up to 12 months.

A distinguishing feature is the programme’s automatic participation mechanism. AFC and Munich Re have agreed eligibility parameters and risk limits in advance, allowing qualifying transactions to receive risk-sharing support without requiring a separate negotiation for each exposure.

AFC will retain part of the risk on every transaction.

The programme is also designed to recycle capacity as underlying trade transactions mature. Rather than treating US$1bn as a fixed amount available for a single lending cycle, the structure allows risk capacity released through repayments to support further trade activity.

This could be particularly useful for African banks financing imports and exports, where relatively short transaction maturities create recurring demand for letters of credit, guarantees and working-capital facilities.

The agreement builds on a relationship established in 2018, during which Munich Re participated in individual AFC transactions. The new structure replaces that transaction-by-transaction approach with a standing framework.

It also forms part of AFC’s broader strategy to attract institutional risk capital alongside its own lending activities.

In August, AFC established a Bermuda-based captive insurance subsidiary backed by up to US$30m in equity capital, providing another mechanism for managing credit exposure.

Together, the arrangements demonstrate how development finance institutions are increasingly using insurance and risk distribution to expand lending capacity without relying exclusively on additional balance-sheet funding.

The immediate test will be how quickly the new programme translates committed risk capacity into additional trade-finance transactions for participating African banks.