With the start of trade under the African Continental Free Trade Area (AfCFTA) on January 1, the African Export-Import Bank (Afreximbank) has suggested factoring as a viable alternative financing instrument for supporting small and medium-sized enterprises (SMEs) at a time when traditional commercial bank lending is tightening.
During a virtual workshop held in December, Kanayo Awani, managing director of Afreximbank’s Intra-African Trade Initiative, said that access to finance for SMEs would play a key role in intra-regional trade under the AfCFTA.
“SMEs constitute the greatest proportion of the continent’s industrial fibre, accounting for about 80% of businesses and employing not less than 70% of the continent’s workforce,” she said. “Given that access to finance remains a key constraint to SME operations, availability of sustainable trade finance, especially for SMEs, will remain the key lubricant to propel the AfCFTA, the single largest trading bloc globally, towards the realisation of its aspirations,” she added.
To support SMEs that cannot obtain traditional bank funding, Afreximbank suggests the use of open account transactions which are cheaper than letters of credit and simply involve a business selling its receivables at a discount to a third party called a factor.
The bank has been supporting the promotion and development of factoring for over 12 years by extending factoring lines of credit to factoring companies and banks offering factoring services, carrying out education and awareness campaigns, as well as advocating for an enabling legal and regulatory environment for factoring to thrive on the continent, amongst others.