The Senate, on Wednesday, passed for second reading the Factoring Regulation Bill, 2024 (SB.474) — a key reform measure aimed at easing cash-flow constraints for small businesses and unlocking over $1 billion annually in financing for Nigeria’s micro, small and medium enterprises (MSMEs).
Sponsoring the Bill, Senator Asuquo Ekpenyong (Cross River South) said the legislation directly addresses one of the most persistent challenges facing small businesses — delayed payments that trap enterprises in cycles of weak liquidity and slow growth.
He noted that MSMEs, which number over 40 million and account for the bulk of jobs in Nigeria, often wait 30, 60, or even 90 days to receive payment after delivering goods or services — a delay that hampers their ability to pay staff, buy raw materials, or expand operations.
“This cycle of delayed payment weakens small businesses, limits their survival, and slows down overall economic growth,” Ekpenyong told colleagues during plenary.
The Bill proposes to formalise and regulate factoring — a financing model that allows businesses to sell verified invoices to licensed financial institutions or factors at a small discount, thereby gaining immediate access to working capital.
Under this system, the factor advances up to 90 per cent of the invoice value and collects payment from the buyer when due.
Ekpenyong explained that, unlike traditional bank loans, factoring relies on the buyer’s creditworthiness rather than the SME’s collateral or credit history.
“Factoring enables businesses to access financing on the strength of their sales, not their fixed assets,” he said.
The legislation empowers the Securities and Exchange Commission (SEC) to license and supervise factoring institutions, ensuring transparency, consumer protection, and enforceable invoice transfers.
It also aligns with ongoing financial reforms such as e-invoicing and digital receivables registries, which are expected to curb fraud and improve transaction verification.
Ekpenyong said international experience demonstrates the transformative potential of factoring, citing Mexico’s Cadenas Productivas programme, India’s digital TReDS platform, and similar initiatives in Chile, Brazil, and South Africa.
“With clear rules, Nigeria could unlock over $1 billion annually for small enterprises through factoring — funds that will directly support jobs, production, and local value chains,” he said.
The Bill mandates regular reporting on factoring volumes, buyer concentration, and MSME participation, as well as plain-language contracts and cost disclosures to improve financial literacy and protect small businesses.
Ekpenyong described the measure as a structural reform, not another short-term loan scheme.
“By passing this Bill, we will empower Nigerian businesses to hire faster, restock sooner, and grow stronger — without resorting to expensive, collateral-backed debt,” he added.
The Bill, which was first read on June 11, 2024, was referred to the relevant Senate committees for further legislative action after scaling the second reading.
