Why the Africa trade finance gap is the biggest missed profit pool for East African banks

Tuesday 2nd December 2025

by inAfrika Newsroom

Walk into any boardroom in Dar es Salaam, Nairobi or Kigali and you will hear the same concern: margins are under pressure, competition is rising, and new fintechs are eating away fee income. At the very same time, the Africa trade finance gap still sits between US$80 billion and US$120 billion, leaving thousands of viable deals on the table each year. For a Bank CEO who needs new growth without reckless risk, that gap is not just a development problem; it is a very large, under-used profit pool.

Globally, banking is entering a tougher decade. McKinsey’s 2025 Global Banking Review warns that if banks do not reposition around new ecosystems and third-party platforms, global profit pools could shrink by about US$170 billion, or 9 percent, by 2030. African banks have enjoyed a rebound since the COVID shock, with average return on equity climbing back toward mid-teens levels. However, productivity remains weak and many balance sheets are increasingly tied up in domestic government paper, especially in sub-Saharan Africa where roughly half of public debt is now held by local banks. In that context, the Africa trade finance gap looks like one of the few ways to grow good assets while also serving real-economy clients.

The demand is visible in every port and border. SMEs and mid-sized corporates in Eastern and Southern Africa face long delays and frequent rejections when they apply for letters of credit, guarantees or supply-chain finance. IFC estimates that MSMEs in emerging markets face a wider US$5.7 trillion finance gap, which rises to US$8 trillion when informal firms are counted. Within that global picture, African traders are often treated as too small, too risky or too costly to underwrite. As a result, many resort to prepaid cash deals, lose bargaining power and fail to scale.

Yet the long-term trade outlook is moving in their favour. If fully implemented, AfCFTA could raise Africa’s total income by about US$450 billion by 2035 and lift up to 30 million people out of extreme poverty. Intra-African trade could rise to around one-third of the continent’s total trade by the mid-2030s. For East African banks, that means more cross-border flows along the Central and Northern Corridors, more regional manufacturers, and more clients who need structured support rather than simple overdrafts.

At the same time, the transaction rails are changing fast. Africa’s cashless payments industry is projected to grow by more than 150 percent between 2020 and 2025, from about US$15 billion in revenue to nearly US$40 billion. Inclusive instant payment systems across 31 African countries processed 64 billion transactions worth almost US$2 trillion in 2024 alone. In Tanzania, real-time payments through TIPS reached US$11.6 billion in 2024 and almost doubled their transaction count in a single year. COMESA has now launched a digital retail payments platform that lets SMEs trade in local currencies and aims to keep fees below 3 percent.

These trends create the perfect conditions to treat the Africa trade finance gap as a design problem, not a fate. Banks already sit on rich transaction data flowing through mobile wallets, instant payment systems and card networks. With the right analytics, they can use these histories to underwrite small traders that once looked invisible. A clearing agent who consistently handles 50 containers a month, or a maize trader who settles dozens of digital invoices across the Central Corridor, is no longer a “thin-file” customer. Instead, they become a map of real economic behaviour.

For Bank CEOs, the entry point is not to copy global investment banks. It is to build lean, regionally focused trade desks that combine three ingredients. First, a digital front-end tied into the existing payment and core banking systems, so SMEs can apply for guarantees or payables finance without long branch visits. Second, a risk engine that blends traditional credit checks with real transaction data from national switches, instant payments and POS networks. Third, strong risk-sharing partnerships with DFIs and regional institutions that can provide guarantees or subordinated capital.

Some early moves are already visible. Pan-African banks and specialist platforms are experimenting with supply-chain finance anchored in supermarket chains, mining firms and large agribusinesses. Afreximbank and the AfDB are expanding guarantee programmes and trade-linked credit lines. However, East African domestic banks still tend to approach trade finance as a niche product rather than a strategic pillar. That mindset leaves the Africa trade finance gap wide open for others to fill.

There is also a funding angle. As sovereigns borrow more at home, banks face concentration risks and crowding out of private clients. Rebalancing toward self-liquidating trade assets can help. Well-structured trade finance often carries low default rates and short tenors, especially when it is tied to proven flows in food, fuel, fertiliser and fast-moving consumer goods. Consequently, a portfolio tilt toward trade can support both liquidity and capital efficiency.

The strategic question for Bank CEOs is simple. In a decade where global profit pools may shrink, and where non-bank platforms loom large, do you want to be the institution that selectively closes the Africa trade finance gap in your corridor, or the one that watches someone else do it? The banks that win will be those that treat trade not as paperwork, but as the most tangible link between digital rails, real economy clients and long-term, repeatable profit.