Afreximbank harps on strong legislation to boost factoring
The move will enhance the continent’s Small and Medium-sized Enterprises (SMEs) access to the elusive and much-needed finance.In factoring, an exporter or supplier sells his accounts receivable or invoices at a discount to a third party, called a factor, in exchange for immediate cash with which to finance continued business.
So, factors are business agents, merchants that buy and sell on commission basis, especially those that buy manufacturers’ invoices at a discount and takes responsibility for collecting the payments due on them.
Afreximbank’s sensitisation seminar on Model Law on Factoring in Nairobi, Kenya, at the weekend, drew together the financial community, legal practitioners and legislators in Africa to find the best ways to develop legal frameworks for factoring.
The seminar brought together over 40 representatives of central banks, regulatory bodies, legislative authorities, commercial banks, law firms and factoring companies as well as members of parliament from the East Africa region.
“Strengthening legislation is critical to promoting the growth of factoring,” the Managing Director of Afreximbank’s Intra-African Trade Initiative and Chairman of the Africa Chapter of Factors Chain International (FCI), Kanayo Awani, said.
Held as a knowledge-sharing platform and expected to lead to the development of clear road maps for the implementation of national factoring laws, the seminar follows earlier sensitisation seminars organised in Abuja and Abidjan.
According to her, factoring can be the game-changer in terms of addressing the issue of limited access to finance faced by Africa’s SMEs.Awani, who noted that a key part of Afreximbank’s Intra-African Trade Strategy was to facilitate greater contribution by SME’s to Africa’s regional value chains, said that the objective of the seminar was to present the salient provisions of the model law and to share ideas on the best approach for its adoption in East African countries.
Partner at the London office of the Squire Patton Boggs law firm, Edward Wilde, outlined the concepts of factoring and discussed current international practices and evolving trends.
Awani provided details about technical support, advisory services and funding facilities available from Afreximbank to national banks and accredited factoring companies in order to increase the use of factoring as an alternative trade finance instrument available to SMEs in Africa.
She said that since 2011, Afreximbank had approved about $100 million for factors in Africa and that the bank was currently reviewing $122 million worth of credit lines for factoring institutions in Botswana, Burkina Faso, Cameroon, Egypt, Mauritius, Tunisia and Zambia.
But Dr. Enga Kameni of the Afreximbank Legal Services Department said that significant provisions of the model law could be adapted and applied in various ways to refine local legislation on factoring.
The Afreximbank Model Law on Factoring was launched on October 23, in Cape Town, South Africa, during the seventh Annual Meeting of the Africa Chapter.
It aims at serving as a benchmark against which African national legislators will be able to compare, contrast, improve or enact new legal, institutional and practical arrangements in order to create enabling environments for the growth of factoring activities in their respective jurisdictions.