Factoring: NEXIM urges NASS to pass Bill
By Patience Ikpeme
The Nigerian Export-Import Bank (NEXIM), is lobbying the National Assembly to pass the Factoring legislation.
Factoring is a financial transaction in which a business sells its outstanding invoices or accounts receivable to a third party, known as a factor, at a discounted price.
This helps the business get immediate cash flow and meet its short-term liquidity needs, rather than waiting for the clients to pay their invoices.
The factor takes over the responsibility of collecting payments from the clients. Factoring can be a useful solution for businesses that may have a long payment cycle or limited cash flow.
Managing Director of NEXIM Mr. Abba Bello, believes that Nigeria would greatly benefit from the implementation of Factoring legislation.
He argued that such legislation would provide working capital for Micro, Small and Medium Enterprises (MSMEs) in Nigeria and give a significant boost to the country’s economy.
Currently, Africa accounts for just one percent of the global factoring market, which is worth €3.7 trillion. Nonetheless, Mr. Bello remains optimistic and suggests that such legislation would enable the broadening of supply chain financing, providing alternative funding for emerging SMEs that currently have no credit records or history.
This approach he said “would enhance these SMEs’ export trading and employment generation potentials”.
Mr. Bello expressed his views during a factoring training workshop in Abuja, hosted by Afreximbank/AfDB FAPA grant consulting activity.
NEXIM Bank is leading the charge for the passage of the Factoring Bill, which is currently being considered by the Nigerian National Assembly. If passed, it would create a regulated funding environment that would enable SMEs to grow and sustain operations without depending on tangible collateral to secure institutional funding support.
Mr. Peter Olowononi, the Head of Client Relations of African Export-Import Bank (Afrexim Bank), highlighted the lack of access to finance as a significant challenge facing SMEs in Africa.
He stressed the importance of facilitating adequate and appropriate financing, as it is key to establishing and developing these businesses to take advantage of the trade opportunities represented by the African Continental Free Trade Area (AfCFTA) Agreement.
According to him, “Factoring offers an alternative to other external financing sources for SMEs, such as bank loans, leasing, and venture capital.
“Currently, only a handful of factoring companies operate in Africa, with just one percent of €3.7 trillion in global factoring volumes coming from the region.
“Furthermore, factoring volumes in Africa remain concentrated in just a few countries, with South Africa, Morocco, and Egypt accounting for 98 percent of the factoring volumes in Africa”.
Market structures are highly skewed, with the largest five factoring companies in each market accounting for about 83 percent of factoring volumes in those markets. Beyond that, factoring in Africa is dominated by banks, which account for 46 percent of all factoring activity, followed by banking subsidiaries (27 percent) and non-bank finance companies (10 percent).
Mr. Olowononi believes that factoring needs to be accessible to companies interested in the financial service to expand its reach to SMEs that are poorly banked by the banking sector.
He also highlighted that a lack of credit insurance is another reason for low factoring volumes in Africa, emphasizing that trade credit insurance in sub-Saharan Africa remains largely confined to South Africa.
However, Mr. Olowononi is optimistic about the future potential of factoring in Africa, with an expected factoring volume of €50 billion by 2025.
