Micro Small and Medium Enterprises (MSMEs) in Africa can tap into the tremendous potential of the factoring industry to bolster their operations and fuel growth, according to Peter Olowononi, Head of Client Relations, Anglophone West Africa, at the African Export-Import Bank (Afreximbank). Factoring, a financing solution where a third party purchases a company’s account receivables, provides a vital lifeline to MSMEs struggling with limited access to affordable and effective finance.
During a recent training and capacity-building event on factoring in Abuja, Olowononi highlighted the vulnerability of MSMEs due to various challenges, including a lack of financial skills in preparing bankable proposals, risk-averse banks demanding excessive collateral, insufficient specialized financial institutions, shallow capital markets, and a generally weak financial sector.
“Fostering the availability of adequate and suitable financing for SMEs is crucial in helping them reach their full potential. Factoring presents a significant alternative to traditional external financing sources, such as bank loans, leasing, venture capital, etc.,” Olowononi emphasized.
Although factoring is an emerging market, it holds immense promise, with a volume of over €41.8 billion in Africa, projected to reach €50 billion by 2025. However, the continent remains a minor player in the global factoring market, accounting for only 1% of the €3.7 trillion global factoring volumes in 2022. Notably, South Africa (89%), Morocco (6%), and Egypt (3%) collectively contribute about 98% of the factoring volumes in Africa.
A significant share of factoring in Africa is controlled by banks (46%), followed by banking subsidiaries (27%), and non-bank finance companies (10%). To maximize the potential of factoring and extending its reach to underserved SMEs, Olowononi emphasized the importance of including other companies interested in providing this financial service.
Olowononi underlined the correlation between the growth of factoring and credit insurance in Africa, calling on insurance companies to step up their efforts in offering trade credit insurance solutions to support factoring’s expansion and SME financing.
Afreximbank, in collaboration with FCI and other strategic partners, is committed to supporting SMEs, factoring companies, banks, and corporates in Africa by providing the necessary financing, capacity building, technical assistance, and other crucial resources.
In alignment with the goals of the African Continental Free Trade Area (AfCFTA), Abba Bello, Managing Director, and Chief Executive of the Nigerian Export-Import Bank (NEXIM), emphasized the need to promote financial inclusion and MSMEs’ development for economic growth and employment generation. NEXIM’s drive to promote factoring services aligns strategically with its role as a trade policy bank, fostering financial inclusion of the informal sector, creating a regulated funding environment for SMEs, and enhancing Nigeria’s readiness for competitive trade under AfCFTA.
Factoring emerges as a game-changer for MSMEs in Africa, providing them with vital financial support to overcome challenges, access working capital, and expand their businesses. As Africa’s economic landscape continues to evolve, embracing factoring and fostering financial inclusion for MSMEs will be critical in unlocking their full potential and driving sustainable economic growth.
