The African Export-Import Bank has urged all African Small and Medium-scale Enterprises to engage in factoring as a viable and sustainable solution to address the challenge of access to financing for their businesses.
This is contained in a statement issued on Tuesday by the Director and Global Head of Communications and Events Management at Afreximbank, Mr Obi Emekekwue.
Emekekwue quoted the Managing Director, Intra-African Trade Initiative at Afreximbank, Ms Kanayo Awani, as saying that poor engagement of factoring had hindered the growth of Africa’s SMEs.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount.
A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
Awani said that factoring was an important alternative to other trade financing sources such as bank loans.
She wondered why SMEs in most African countries were shying away from this as Africa accounted for less than one percent of global factoring volumes in 2017 in spite of its huge opportunities.
According to her, the factoring volumes of 22.3 billion euros as at 2017 are engaged by SMEs in South Africa, Tunisia, Morocco, Egypt, Mauritius and Kenya.
She said that Africa’s factoring volumes were projected to reach about 200 billion euros by 2021, resulting mostly from new market entrants supported by the sustained economic growth and the rapid rise of Africa’s middle class.
Awani said, “Other factors that could raise factoring volumes include the 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.
“Afreximbank has facilitated the growth of factoring in Africa through various interventions, including supporting the creation of a facilitative legal and regulatory environment for factoring.
“It has provided finance and guarantees to factoring companies; provision of technical assistance; and formation of strategic partnerships to promote the development of factoring.”
Afreximbank is a pan-African multilateral financial institution devoted to financing and promoting intra- and extra-African trade.
The institution was established in October 1993 by African governments, African private and institutional investors and non-African investors.
Since 1994, it had approved more than $67bn in credit facilities for African businesses, including $7.2bn in 2018, according to the statement.
Afreximbank has a total asset of $11.9bn as at December 31, 2017, and is rated BBB+ (GCR), Baa1 (Moody’s) and BBB- (Fitch).