Factoring can bridge financing gap, says Afreximbank
African Export-Import Bank (Afreximbank) has reiterated the importance of factoring services in bridging the assessed gap in financing among small and medium-sized enterprises (SMEs) in Africa.
While admitting that the business model was scripted to address the challenges the SMEs face in accessing funding for business activities, the bank noted that it is also important to develop the model across Africa.
In factoring, an exporter or supplier sells his accounts receivable or invoices at a discount to a third party, called a factor, in exchange for immediate cash with which to finance continued business.
The Managing Director of the Intra-African Trade Initiative of Afreximbank, Kanayo Awani, at a two-day factoring promotion seminar in Douala, Cameroon, said the effectiveness and potential of factoring services to support SMEs became even higher during periods of financial distress.
She said that because of its unique features, factoring was well-suited for facilitating financial inclusion of SMEs. The seminar followed similar factoring promotion and capacity-building events organised by Afreximbank in Egypt, Ghana, Nigeria, Tanzania, Kenya, Zambia and Mauritius.
To support its strategy to grow intra-African trade and facilitate greater SME contribution to regional and global supply chains, Afreximbank had been championing the development of factoring in Africa.
The support had been through provision of credit lines to factors, capacity-building workshops, policy and regulatory inputs, advisory services and technical assistance to promote best practices.
“We are proud to note the increased awareness about factoring in Africa and, more tangibly, the growing number of factoring companies on account of our efforts,” she said.
Increasing factoring transaction volumes and ensuring stronger legal frameworks were also part of the Bank’s targets.
The representative of the Governor of the Littoral Region of Cameroon, Aboubakar Njikam, said the country had enacted legislation to regulate factoring in recognition of its importance in unlocking economic development.
Cameroon was sparring no effort in promoting the development and use of the product and the new law provided the enabling environment for its growth in the coming years. Cameroon is among African countries where new factors are emerging and its factoring volumes reached about €40 million in 2016.
In addition to providing networking opportunities for international and sub-regional factoring practitioners, the seminar introduced participants to the principles, mechanics, risks and benefits of factoring using case studies and success stories.
The Afreximbank Model Law on Factoring was also explained to participants, highlighting the ways in which it could be adapted to suit different local regulatory environments.
The seminar was organised in collaboration with FCI, the global representative body for the factoring and receivables finance industry; Afriland First Bank Group; and CamLease, the Cameroonian leasing association. More than 150 finance professionals, legal practitioners, corporates and SMEs from Cameroun, the Central Africa region and beyond attended the event.