The African Export-Import Bank, Afreximbank, is considering factoring as a viable alternative financing instrument for supporting Small and Medium-sized Enterprises, SMEs. This reality comes at a time when traditional commercial bank lending is tightening while trading is about to begin under the African Continental Free Trade Area, AfCFTA.
Managing Director of Afreximbank’s Intra-African Trade Initiative and Chairperson of FCI’s Africa Chapter, Kanayo Awani said that access to finance for SMEs would play a key role in intra-regional trade under the AfCFTA. She spoke at the opening of a virtual workshop that focused on opportunities for factoring in Africa held in Cairo, Egypt.
“SMEs constitute the greatest proportion of the continent’s industrial fibre, accounting for about 80% of businesses and employing not less than 70% of the continent’s workforce,” noted Ms. Awani. “Given that access to finance remains a key constraint to SME operations, availability of sustainable trade finance, especially for SMEs, will remain the key lubricant to propel the AfCFTA, the single largest trading bloc globally, towards the realization of its aspirations,” she added.
To support SMEs that cannot obtain traditional bank funding, Afreximbank proffers the use of open account transactions which are cheaper than letters of credit and simply involved a business selling its receivables at a discount to a third party called a factor.
The Bank has been supporting the promotion and development of factoring for over 12 years by extending factoring lines of credit to factoring companies and banks offering factoring services, carrying out education and awareness campaigns as well as advocating for enabling legal and regulatory environment for factoring to thrive on the continent, among others.
The Factoring volumes in Africa grew by 10% to EUR 24 billion in 2019 with Afreximbank supporting this growth by providing financing to emerging factoring companies in Cameroon, Senegal, Congo, Zimbabwe, Botswana and Nigeria. The Bank also developed and launched a Model law in 2016 and seeks its adoption and implementation by engaging government officials, legislators, relevant African regional organizations, and regulators to improve the legal and regulatory environment for factoring.
“Egypt, for instance, reviewed and promulgated a new factoring law in 2018 using the Afreximbank Factoring Model Law as Guide and this has contributed to the sharp growth in Factoring activities” Ms. Awani told participants.
Organized by Afreximbank in collaboration with FCI Africa Chapter, the workshop attracted no fewer than 240 registered attendees from factoring companies, banks and non-bank financial institutions, government agencies, consulting firms and IT providers. It highlighted how factoring plays an important role in financing economic activities and discussed the current state of the factoring industry, new challenges, current developments and opportunities