The African Export Import Bank (AFREXIM), has introduced a new business financing initiative tagged ‘ Factoring’ which is aimed at growing small and medium enterprises across Africa.
According to AFREXIM, Factoring, a financing solutions for African trade targeted at integrating African SMEs into the global value chain, is a service involving the purchase by a financial institution called a factor of receivables due to exporters and suppliers or sellers by their customers or buyers with the factor assuming full credit and collection responsibilities.
The initiative,originated from trade in textiles in the United States and UK and has today stood as supporting pillar for SMEs of many developed and developing countries.
AFREXIM Bank, at the 17th Advanced Structured Trade Finance Seminar and workshop held in Sal Island, Cape Verde, hosted a one day workshop on the Factoring initiative bringing experts from global finance institutions and corporations from both United States and UK to brainstorm with African Business operators on how the initiative could be used to advance trade in manufacturing and exports especially among SMEs in Africa.
Speaking on the initiative, Mr Peter Mulroy, Secretary General, FCI, said those who provide factoring services are known as factors.
He said a factor is a specialised financial company either independent or a subsidiary or division of a bank that provides certain services to a business by leveraging their clients accounts receivable.
According to him, a factor, provides four basic services to its clients which includes credit coverage,, Accounts receivable management, finance against account receivable and collection services.
He said factoring is beneficial to both the clients and to the factor explaining that to the client, it improves his cash flow,eliminates credit losses, reduces his operating expenses, expands his working capital and improves his management information through online reports such as customer payments, accounts receivable aging , credit approvals and customer deductions.
To the factor, Mulroy, said it is beneficial in the area of direct monitoring of the receivables portfolio by the factor or bank ,it gives him greater collateral control as well as helps in collection of debts controlled by factor.
Mulroy, encouraged African businesses especially SME operators to embrace factoring as a means of financing their businesses.
Also speaking, Senior Manager Trade Finance AFREXIM, Intong Eric Monchu, said to make Factoring work as a means of business financing in Africa,the board of the bank, has approved $150million for the initiative.
He said the bank is currently brainstorming on how to facilitate the workings of the enabling regulatory environment to ensure the success of the initiative in Africa.
He said the bank is partnering with FCI to develop a model that will facilitate eight member countries of AFREXIM Bank commence the implementation of the initiative in their countries having launched its code in October 2016.
He said in Nigeria, the Factoring code is currently being discussed at parliamentary level and will in the next one year be adopted.
He said AFREXIM, is also busy in the area of awareness creation and capacity building through training for adoption of Factoring in Africa and has entered into strategic partnership with FCI and other relevant financial institutions adding that though these efforts, the bank has projected that in the next five years, it will establish Factoring as means of trade financing to no less than 30 countries in Africa .