Factoring: NEXIM, AFREXIM Eye $6.6bn Market to Unlock Funding to MSMEs

James Emejo in Abuja

Following failure by the National Assembly to pass the Factoring Bill since 2018, despite its ability to unlock over $6.6 billion in financing to small businesses in the country, the Nigerian Export-Import Bank (NEXIM) and the African Export-Import Bank (AFREXIM) have rallied stakeholders to commence the services with a regulation while awaiting the law.

The Managing Director/ Chief Executive, Nigerian Export -Import Bank (NEXIM), Mr. Abba Bello, said factoring remained one of the financing options that will mitigate the traditional challenges of SMEs in meeting the eligibility criteria for accessing credit from traditional banking institutions.

Speaking at the opening of the factoring training workshop under the auspices of Afreximbank /AfDB FAPA grant consulting activity in Abuja, Bello said it was important to make progress with factoring services, particularly against the backdrop of the AfCFTA and the need to promote financial inclusion and MSMEs’ development for economic growth and employment generation.

Essentially, factoring involves a business selling its accounts receivables to a third party called a factor at a discount to solve an immediate cash need and is considered a low-hanging fruit in providing a huge financing lifeline to SMEs which are often starved of the funds they need to grow and contribute meaningfully to the economy.

Reports estimated that Nigeria’s factoring market is worth over $6.6 billion due to the high informal sector and could increase to $27.1 billion with more formalisation of SMEs, a conducive policy environment among others.

MSMEs account for more than half of the market at $3.5 billion thus validating the link between factoring and financing for SMEs.

However, to guarantee successful deployment in the country especially for instances of adjudication, the promoters said there was a need to have a law backing factoring.

The Factoring Bill had been in the National Assembly for the past six years awaiting passage, thereby delaying the commencement of services in the country while other countries in Africa have progressed. 

The NEXIM Bank MD also stated that the development finance institution was committed to facilitating the growth and development of the trade credit insurance market, and other key financial infrastructure that will engender a sustainable factoring ecosystem.

He reiterated the bank’s commitment to the current advocacy and partnership framework towards the promotion of factoring services adding that the training workshop will no doubt facilitate capacity building and technical skills acquisition preparatory to the introduction of factoring services in Nigeria.

Bello noted that the bank had over the years been engaged in joint advocacy with the CBN FSS2020, Afreximbank, Factor Chain International (FCI) and other stakeholders in the Nigerian Factoring Working Group to champion the passage of a draft Factoring Bill currently at the National Assembly, as well as the issuance of specific Factoring Regulation/Circular towards a transparent and credible service in the country.

He said the promotion of factoring services is strategically aligned with the bank’s mandate as a trade policy bank towards facilitating the mainstreaming of the informal sector into the financial sector of the economy with the attendant benefits of access to finance/working capital support, thereby enhancing financial inclusion of MSMEs among others.

Also speaking at the workshop, Technical Adviser to the NEXIM Bank MD, Mr. Hope Yongo, recommended that stakeholders should immediately commence pilot factoring services with regulation while still awaiting an Act of the National Assembly to back up the operation.

The plan is to leverage existing regulations in the banking industry for a start. 

He pointed out that countries including Egypt and India among others, initially started factoring without a law. He believed that the positive results from its operation will speak louder and hasten the passage of the Bill.

Yongo warned that waiting for the passage of the Bill by the legislature could further put Nigeria behind as well as hamper progress in its deployment.

He added factoring represented an opportunity to diversify the country’s non-oil export base and boost trading with neighbouring countries.

However, Head, Client Relations, Anglophone West Africa, Afrexim Bank, Mr. Peter Olowononi, said the COVID-19 pandemic and global headwinds arising from the Russia-Ukraine crisis have validated the strategic focus of the bank on promoting intra-African trade.

He said factoring had been the option as SMEs have been disproportionally affected by rising financing costs and related supply chain disruptions caused by these crises.

Olowononi also said Afreximbank, working with FCI and other strategic partners, will not relent in its efforts at supporting SMEs, factoring companies, banks, and corporates in Africa with the requisite financing, capacity building, and technical assistance among other interventions.