Munich Re has agreed to share up to US$1bn of risk on the Africa Finance Corporation’s (AFC) trade finance lending to banks.  

The arrangement will cover letters of credit, trade loans and guarantees with 38 financial institutions in 11 African nations, the AFC said in a statement, adding that eligible products and sectors may be added over time.  

Munich Re and the AFC have agreed risk parameters and limits that will allow the German insurer to share risks automatically, speeding up the process for the AFC’s customer banks, the pan-African multilateral development financial institution said.  

The AFC did not respond when how the two institutions will share revenue under the arrangement and whether it will impact the pricing on the AFC’s lending to banks. 

The new deal replaces an arrangement under which Munich Re shared risk on individual AFC transactions. “For African banks, the programme means more trade finance, delivered faster,” the AFC said.  

The programme will allow the AFC to originate more lending than it may otherwise do so under its own risk limits. Sharing the risk of losses from trade finance lending has become a stronger focus for both commercial and development banks in recent years as they look for ways to maintain or grow lending in the face of tighter capital restrictions.  

Multilateral lenders such as the AFC have been both risk-takers and risk-sharers through structures such as first-loss programmes and significant risk transfers.   

“Multilateral development banks like AFC are increasingly embracing an originate-to-distribute model, with private capital mobilisation becoming central to how we deliver greater development impact,” said AFC executive board member and head of financial services Banji Fehintola.  

Munich Re’s head of global credit solutions Herbert Müller said the trust built between the re/insurer and AFC since first co-operating in 2018, “has allowed us to move from a transactional to a programmatic approach”.  

“We see African trade as a long-term opportunity, and this programme gives us an efficient way to grow our business and improve our diversification.