Nigeria and other countries in Africa have been urged to strengthen their legal and regulatory frameworks to support the growth of factoring as a critical financing tool for small and medium-sized enterprises (SMEs).
This would help unlock much-needed liquidity for businesses, enhance financial inclusion, reduce dependence on collateral-based lending and enable SMEs to contribute meaningfully to economic development.
Addressing participants at the fourth edition of the Intra-African Trade Fair in Algiers, Algeria, the Executive Vice President of Intra-African Trade and Export Development at Afreximbank, Kanayo Awani, underscored the pivotal role factoring can play in unlocking the potential of SMEs, which remain the engine of economic growth and job creation across the continent.
Speaking on the theme: ‘Empowering SMEs Through Factoring: Unlocking Growth and Financial Optimisation’, Awani said small and medium enterprises (SMEs) are the backbone of most economies, particularly in emerging markets where they account for the majority of employment and contribute significantly to output levels.
However, she stated that despite their importance, the segment of the market continues to face chronic challenges in accessing finance, even as traditional lending models, which rely heavily on collateral, credit history and rigid repayment terms, often exclude SMEs from much-needed capital.
To this effect, factoring has emerged as a viable, flexible, scalable solution and it must be embraced as a cornerstone of SME financing, she said. Factoring is a financial transaction in which a business sells its accounts receivable (invoices) to a third party (a factor) at a discount.
It provides immediate cash flow to the business to help it cover operational costs, invest in growth, and manage working capital without waiting for longer days for customers to pay.
Awani, who is also the Chair of the Africa Chapter of FCI, stated that the time has come to move factoring from the margins of financial instruments into the mainstream of Africa’s emerging growth story.
She noted that factoring should no longer be seen as an alternative or lesser-known option, but rather as a central pillar in the financing landscape for African businesses, particularly SMEs that are often excluded from traditional lending systems due to a lack of collateral, limited credit histories, and rigid banking requirements.
Despite the promise and proven success of factoring in other parts of the world, its adoption in Africa remains extremely low. Awani lamented that factoring accounts for only about one percent of total financing activity on the continent. This, she said, is far below its potential and represents a missed opportunity to bridge the financing gap faced by millions of African entrepreneurs and small businesses.
She further stressed that for factoring to thrive and play its intended role in Africa’s development, countries must put in place enabling environments, starting with strong legal and regulatory infrastructure. Without laws that recognize and protect factoring transactions, enforce contracts, and support invoice-based financing mechanisms, the ecosystem cannot scale.
Awani argued that reforms in commercial laws, the creation of factoring registries, and the training of judicial officers and financial institutions are essential steps toward building trust and transparency in the system.
