African Development Bank and Mashreq sign African trade finance guarantee agreement

The African Development Bank Group has signed an agreement with Dubai-based Mashreq allowing the bank to obtain guarantees covering up to 100% of the non-payment risk on eligible African trade-finance transactions, in a move designed to increase financing capacity for cross-border trade.

Under the agreement, announced on 13 October, Mashreq will participate as a confirming bank in the African Development Bank’s Trade Finance Transaction Guarantee Instrument.

The arrangement enables the multilateral lender to assume some or all of the payment risk that Mashreq takes when supporting trade transactions originated by approved African issuing banks.

The structure addresses one of the central constraints facing African trade finance: international banks’ willingness to accept payment obligations from financial institutions operating in markets where country risk, counterparty exposure or limited credit lines can restrict trade.

In a typical transaction, an African bank issues a letter of credit on behalf of an importer. An international confirming bank then adds its own payment undertaking, giving the exporter additional assurance that payment will be received when the documentary conditions are satisfied.

The African Development Bank’s guarantee reduces the confirming bank’s exposure to the issuing bank’s failure to honour its payment obligation.

For Mashreq, this can create additional capacity to support transactions that might otherwise be constrained by internal counterparty limits or risk appetite.

The arrangement is unfunded, meaning the development bank provides contingent risk protection rather than advancing the entire value of the underlying trade transaction.

The potential need is substantial. According to the African Development Bank’s 2025 Trade Finance Report, unmet demand for trade finance across Africa was estimated at between US$74bn and US$92bn in 2024, with smaller businesses facing particularly acute difficulties.

The new agreement does not itself represent a funding commitment of that magnitude. Neither institution disclosed an aggregate guarantee ceiling, specific transaction pipeline, pricing or the African banks expected to participate initially.

The guarantee mechanism is nevertheless commercially important because it can allow existing banking relationships to support additional imports and exports without requiring the international confirming bank to retain the full risk.

For African exporters and importers, wider confirmation capacity could improve access to documentary trade instruments, particularly where international counterparties are reluctant to transact solely on the credit standing of a local bank.

The agreement therefore represents an expansion of trade-finance risk-sharing infrastructure rather than a conventional new lending facility.