Financing: Afreximbank makes case for factoring in SMEs
To address the challenge of poor access to financing constantly faced by small and medium businesses in Africa, the African Export-Import Bank, Afreximbank, suggest that factoring could be a viable and sustainable solution.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e. invoices) to a third party (a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
Kanayo Awani, Managing Director of Intra-African Trade Initiative at Afreximbank, said that factoring, a form of trade finance, provided a solution to address the SME financing gap and would help innovative SMEs to grow and support Africa’s structural transformation and trade development, a statement from the bank said.
Ms. Awani, who noted that access to appropriate and affordable finance had been frequently cited as a major obstacle for SMEs, explained that factoring was an important alternative to other trade financing sources, such as bank loans.
She said despite its huge opportunities, factoring has not yet taken off fully in Africa, with the region accounting for less than 1 percent of global factoring volumes in 2017.
Notwithstanding that, the region has demonstrated strong growth in recent years, with factoring volumes growing from Euro 14.9 billion in 2009 to approximately Euro 22.3 billion in 2017, although most of those volumes were concentrated in South Africa, Tunisia, Morocco, Egypt, Mauritius and Kenya.
She said Africa’s factoring volumes were projected to reach about Euro 200 billion by 2021, resulting mostly from new market entrants supported by the sustained economic growth; rapid rise of Africa’s middle class; emergence of innovative industries supported by technological advancements; 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.