Afreximbank Sees Growth Opportunities For MSMEs In €41.8bn Factoring Industry

Micro Small and Medium Enterprises (MSMEs) have more opportunities to grow by leveraging the factoring industry for operations, Peter Olowononi, head, client relations, Anglophone West Africa at the African Export-Import bank (Afreximbank) has said.

Factoring is when a funding source or financier acts as an intermediary agent that provides cash or financing to companies by purchasing their account receivables.

Speaking at a training and capacity building event on factoring held in Abuja on Monday, Olowononi said the vulnerability of MSMEs is largely due to the lack of access to affordable and effective finance.

Consequently, businesses suffer issues around lack of finance skills in preparing bankable proposals, risk-averse banks with excessive collateral requirements, lack of specialized financial institutions, shallow capital markets or a weak financial sector in general, amongst others.

“Ensuring the availability of adequate and appropriate financing to SMEs is essential to help them develop to their full potential; Factoring provides an important alternative to the other external financing sources available for SMEs such as bank loans, leasing, venture capital etc,” he said.

He noted that while factoring is an emerging market, it has significant potential as its volume in Africa is above €41.8 billion and is expected to reach €50 billion by 2025.

“To ensure that factoring is effectively deployed to unlock the potential of African SMEs, more needs to be done, particularly in terms of scale, market expansion and market participants,” he said.

He said Africa remains a marginal player in the global factoring market accounting for 1 percent of the €3.7 trillion global factoring volumes in 2022, with South Africa (89 percent ), Morocco (6 per cent) and Egypt (3 per cent) accounting for about 98 percent factoring volumes in Africa.

“Factoring in Africa is dominated by banks which represent 46 per cent of all factoring activity followed by banking subsidiaries with 27 percent and 10 percent non-bank finance companies; It is therefore essential that factoring should be open to companies interested in this financial service to expand its reach to SMEs who are poorly banked by the banking sector,” he said.

Olowononi said the growth of factoring in Africa directly correlates with the growth of credit insurance on the continent and thus, is important to unlocking the potential for factoring in Africa and challenged insurance companies to offer solutions to growing trade credit insurance for factoring to thrive and to support SME financing.

He reiterated that Afreximbank, working with FCI and other strategic partners, will not relent in its efforts at supporting SMEs, factoring companies, banks and corporates in Africa with the requisite financing, capacity building & technical assistance amongst other interventions.

In his address, Abba Bello, managing director and chief executive, Nigerian Export-Import Bank (NEXIM) In line with the African Continental Free Trade Area (AfCFTA), there is need to promote financial inclusion and MSMEs development for economic growth and employment generation.

He added that NEXIM’s promotion of factoring services is strategically aligned with its mandate as a trade policy bank towards achieving the some value propositions which include facilitating the mainstreaming of the informal sector into the financial sector to enhance financial inclusion, creating a regulated funding environment for SMEs to boost chances of securing institutional funding support.

“Broadening the supply chain financing with alternative funding window for emerging SMEs with no credit records / history, thereby enhancing their export trading and employment generation potentials; Ensuring Nigeria’s readiness to competitively trade under AfCTFA with attractive payment terms for buyers of Nigerian goods and services in all sectors of the economy, thereby broadening the national export basket,” he said.