AFREXIM Bank Introduces Factoring Trade Financing Initiative for SMEs

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.

According to the bank, Nigeria has been slated as one of the initial adopters of the Factoring code as discussions are currently going on at parliamentary level and will be adopted by the country in the next one year.

The initiative, originated from trade in textiles in the United States and United Kingdom 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.

Senior Manager, Trade Finance AFREXIM, Intong Eric Monchu, said that 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 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. Speaking on the initiative, Secretary General, Factors Chain International (FCI), Mr. Peter Mulroy, 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.

Factoring, he explained, is beneficial to both the clients and to the factor explaining that to the client, explaining that it improves cash flow, eliminates credit losses, reduces operating expenses, expands working capital and improves management information through online reports such as customer payments, accounts receivable aging , credit approvals and customer deductions.