Equity Bank, Kenya’s largest financial institution by market capitalization, has secured a $60 million guarantee from the African Development Bank (AfDB) to enable it to expand its letters of credit to exporters and importers in Kenya while shifting repayment risk off its balance sheet.
This support package, approved by the AfDB Board, will therefore strengthen equity’s ability to mediate trade flows for SMEs.
“This facility will enable Equity Bank to provide up to 100 per cent guarantee to confirming banks against the risk of non-payment arising from confirming letters of credit and similar trade finance instruments issued in Kenya,” AfDB said in a disclosure statement on Saturday.
What this facility means for Kenyan businesses
This guarantee is aimed at de-risking Equity Bank’s trade finance operations, particularly for small and medium-sized enterprises involved in import and export activities facilitated by letters of credit.
Letters of credit are a central instrument in international trade, allowing sellers to receive payment if shipping and documentation requirements are met, while transferring credit risk from buyers to banks.
With AfDB fully insuring the risk of non-payment, Equity Bank will be able to reduce the cost of issuing this financing instrument and expand trade finance volumes without putting pressure on its balance sheet.
For Kenyan businesses, the deal is expected to improve access to trade finance and reduce costs associated with perceived credit risk. Small businesses in particular are often charged high fees or excluded from letters of credit altogether due to weak balance sheets or limited trading history.
“This scheme comes at a critical time for Kenyan businesses, especially SMEs, who continue to face significant barriers to accessing affordable trade finance,” said Moses Nyabanda, Managing Director of Equity Bank (Kenya) Limited.
“African Development Bank support will strengthen our ability to develop growth opportunities for local businesses by enabling them to trade with confidence, manage risks and stay in business,” he added.
By transferring buyer default risk to the AfDB, Equity Bank can increase its participation in international trade and support companies seeking to scale beyond their domestic markets.
Facilitate regional and intra-African trade
The AfDB said the deal supports the broader objective of promoting intra-African trade and developing the African Continental Free Trade Area (AfCFTA).
“Supporting African trade is a key priority for the African Development Bank,” said Ramin Drameh, AfDB Trade Finance Division Manager. “Trade finance is essential to Africa’s economic development, facilitating domestic and international trade, fostering growth, and fostering regional integration.”
The scheme also reflects the AfDB’s increasing focus on private sector lending. Last week, the financial institution granted KCB Bank $150 million to support women-led small and medium-sized enterprises and green projects, highlighting KCB Bank’s growing role in strengthening trade and enterprise across the region.
