The African Development Bank (AfDB) has approved a $25 million trade finance line of credit facility for Zimbabwe to be used to boost local firms and small and medium-sized enterprises (SMEs).

Development Diaries reports that the credit facility is for the Central Africa Building Society of Zimbabwe, to enhance foreign currency liquidity support for the building society amidst a tough economic climate in the country.

According to the bank, the facility will cover some of the trade finance gaps developed mainly due to international lenders who have scaled down or halted their trade transactions due to their perception of Zimbabwe as a high-risk jurisdiction.

The SME sector in Zimbabwe faces several challenges that hinder its growth and sustainability. One significant obstacle is the economic instability prevailing in the country. Zimbabwe has grappled with hyperinflation, currency fluctuations, and a fragile financial system, which directly impact the operations of SMEs.

Another major challenge for Zimbabwe’s SME sector is limited access to financing. Many small businesses struggle to secure loans or investment capital due to stringent lending criteria, high interest rates, and a lack of collateral.

‘DFI collaboration is key to private sector development in Africa. This innovative facility will enable CABS to provide liquidity support for SMEs, and women-owned businesses to facilitate their import and export trade finance requirements’, head of Trade Finance at AfDB, Lamin Drammeh said.

The facility is expected to complement the recently approved transaction guarantee facility for $7.5 million to ensure support along the value chains of SMEs and local corporate businesses in Zimbabwe.

Additionally, it is expected to boost the relatively low productivity of Zimbabwe’s SME sector, creating jobs and indirectly improving government revenue through taxes from increased economic activity in the sector.

Source: AfDB

Photo source: AfDB