Innovative financial solutions like factoring and credit insurance offer keys to the growth of small and medium-sized enterprises (SMEs) in Africa and can enhance regional integration, participants at an annual workshop on factoring held on Sal Island in Cape Verde, have heard.
The one-day workshop was organized by the African Export-Import Bank (Afreximbank) on 9 November, in collaboration with FCI and the African Capacity Building Foundation (ACBF), as part of the bank’s Annual Structured Trade Finance Seminar.
According to a statement by the bank, “ It looked at the basic tenets of factoring; the role of credit insurance in unlocking access to finance for SMEs and the best ways to promote the development of the two financial instruments to support economic growth and regional integration in Africa.”
Managing Director of Afreximbank’s Intra-African Trade Initiative and Chairman of the Africa Chapter of FCI, Ms. Kanayo Awani, told participants that “despite new market opportunities opened up by the process of globalization and increased regional integration,
SMEs continue to be constrained due to their lack of resources, their difficulties in achieving economies of scale and the higher transaction costs they face compared to large firms.”
“We are persuaded, though, that the solution to these challenges exist in rolling out effective and innovative financial products such as factoring,” she said.
Awani noted that Africa currently accounted for less than one per cent of the global factoring turnover, saying that the industry was largely dominated, at 60 per cent, by European factors whose turnover represented 10.4 per cent of the European Union’s GDP in 2016. That figure amounted to 1.5 trillion Euros.
To promote the emergence and growth of factors across Africa, Afreximbank provides dedicated lines of credit and offers technical assistance to players in the financial industry, she said.
The Bank also provides legal advice to regulators using the Model Law on Factoring which it developed.
Awani added that Afreximbank had forged strong partnerships with leading institutions, such as FCI and ACBF, as part of its education and training activities.
In his contribution, Carlos Furtado, Executive Director at the Central Bank of Cape Verde, who stood in for the governor of the bank, said that by providing immediate liquidity to SMEs, factoring gave them the financial boost to allow them to integrate into regional and global value chains of growth sectors.
He said that, given the challenging and highly competitive global and African trading environments and the ever evolving nature of international trade finance, African bankers and factors needed to update their knowledge and skills
in order to make better use of opportunities presented by the expected growth in the retail, agriculture, telecommunications, oil and gas and many other sectors.
Furtado commended Afreximbank for its commitment to improving human and institutional capacities in its member states through its trade finance capacity-building activities.
The statement added that, “A high-level panel discussion addressed the way credit insurance could be applied to factoring to help cover the perceived default risk of SMEs, thereby allowing them greater access to credit.
The expansion of the regulatory regime for factoring from letters of credit to open account modes of payment was canvassed as a way of increasing the affordability and accessibility of factoring in Africa.”
The workshop attracted more than 150 bankers, regulators, lawyers and financial experts from across Africa and beyond.
FCI is the leading global association for factoring and open account receivables finance.
ACBF supports capacity building initiatives in Africa through investments in capacity building institutions; technical assistance for capacity building projects and programmes; and engagement in knowledge and learning activities.