The African Export-Import Bank (Afreximbank) says ‘factoring’, a form of financial transaction, is a viable and sustainable solution that will address access to finance for Africa’s Small and Medium Enterprises (SMEs).
Ms Kanayo Awani, Managing Director of the Intra-African Trade Initiative at Afreximbank, said this in a statement by Afreximbank’s Head of Media, Mr Obi Emekekwue, on Monday in Abuja, NAN reports.
Factoring is also a type of debtor finance in which a business sells its accounts receivable to a third party called a factor at a discount.
Emekekwue said the bank’s managing director spoke at a factoring promotion conference in Gaborone.
According to Awani, access to affordable finance hinders the growth of Africa’s SMEs and factoring, a form of trade finance will provide a solution to address the SMEs financing gap.
She said that it would help innovative SMEs to grow and also support Africa’s structural transformation and trade development.
Awani further explained that factoring was an important alternative to other trade financing sources such as bank loans.
“In spite of its huge opportunities, however, factoring has not yet taken off fully in Africa, with the region accounting for less than one per cent of global factoring volumes in 2017.
“Notwithstanding, the region has demonstrated strong growth in recent years, with factoring volumes growing from 14.9 billion Euro in 2009 to approximately 22.3 billion Euro in 2017.
“Most of these volumes are concentrated in South Africa, Tunisia, Morocco, Egypt, Mauritius and Kenya,” Awani said.
She said that Africa’s factoring volumes were projected to reach about 200 billion Euro by 2021, resulting mostly from new market entrants supported by the sustained economic growth.
She said the projected volume was expected to result from rapid rise of Africa’s middle class and the emergence of innovative industries supported by technological advancements.
She said others include the rapidly expanding trade and economic relations between Africa and major economies in the South and increasing focus on regional integration and intra-regional trade under the African Continental Free Trade Agreement.
Afreximbank had been playing leading role in facilitating the growth of factoring in Africa through various interventions.
Some of the interventions include supporting the creation of a facilitative legal and regulatory environment for factoring and provision of finance and guarantees to factoring companies among others.
The two-day Factoring Promotion Conference had as its theme “Domestic and International Factoring: Alternative tools for SME financing in Africa.”
It had over 180 attendees whom it provided practical information on factoring activities and the importance of factoring in the development and promotion of SME financing.
It also provided networking opportunities for African factors, bankers, lawyers and others.