In many participation contracts, the initial lender`s interest on the loan is sold directly to the participant. Therefore, the original lender does not become an agent, agent or agent of the participant. The Master Risk Participation agreement should expressly state that the relationship between the lender and the participant is that of a buyer and a seller, in order to avoid a situation in which a relationship could be implied between agents and agents. As part of a participation agreement, the parties intend to transfer all economic rights from the original lender to the participant without establishing a fiduciary or agent relationship with each other. Tags: Absa Bank, Africa, African Development Bank (AfDB), Derisking, Pierre Guislain, Risk Participation Agreement, SME, Trade Finance Gap We have recently seen an increased interest in our clients` risk-sharing agreements (RPAs). To simplify, this is a relatively new instrument in which banks share their risks related to interest rate swaps on eligible loans. In general, a leading bank enters into a swap with one of its borrowers and attempts to offset some of its credit risk by outsourcing some of the default risk of the borrower`s interest rate swap to a participating bank. In return, the bank concerned receives a fee from the participating bank. There are several versions of a master participation contract. The most widely used versions are the BAFT Master Participation Agreement, based on English law, and the International Trade and Forfaiting Association (ITFA) Master Participation Agreement, based on New York law. Of course, this is my legal version of an RPA – please don`t use it for your own risk participation agreements. With this agreement, both sides are trying to narrow the gap between the demand and supply of trade finance on the continent by facing the greatest challenge facing African e-mail banks: that they are relatively small and therefore have difficulty obtaining adequate trade finance facilities from international confirmation banks to support African importers and exporters. , especially SMEs.
This challenge has increased considerably in recent years, as many international banks have reduced or abandoned their share of credit risk in developing markets. Interprofessional organizations have attempted to ensure that risk-participation agreements are not treated as SEC swaps. These main versions of the equity agreements were developed in the form of industry documents used by banks to facilitate the purchase and sale of risks related to the exchange of countries and banks. These agreements are intended to facilitate the exchange of documents between banks and reduce legal costs by reducing redundancies. This value is created by creating a market to sell the economic shares of the loan between the lender and the borrower, while the lender can remain the record owner of the loan.