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Zambia: Take advantage of factoring as trade finance tool, African businesses urged

Legislators and regulators should assist African businesses to take advantage of the benefits of factoring as a trade finance instrument by creating enabling environments for the flourishing of the instrument, the African Export-Import Bank (Afreximbank) has urged.
Speaking in Lusaka Saturday, at the end of a one-day seminar on factoring organised by the Bank for legislators and regulators from southern, eastern and northern Africa, Bank’s Executive Vice President in charge of Business Development and Corporate Banking Benedict Oramah said the legislators and regulators had a critical role to play in developing appropriate enabling laws to allow factoring to flourish on the continent.
Earlier, in an opening address read by Dr. Oramah, Afreximbank President Jean-Louis Ekra had said the absence of enabling laws and regulations was an important impediment to the expansion of factoring in Africa and had significant negative implication on the ability of SMEs to participate in Africa’s gradually expanding value chain.

“If we want SMEs to form the bulwark of the new Africa we are all looking forward to, we must work towards expanding factoring in the continent,” an Afreximbank statement made available to PANA Sunday quoted Mr. Ekra as telling the participants.

According to him, the seminar was aimed at creating awareness about the impediment posed by the absence of enabling laws and regulations and at introducing lawmakers and regulators to best practices in regulating factoring business.

He said that with recent socio-economic developments, Africa was gradually becoming the next frontier for factoring business, noting that despite volumes being significantly lower than in other regions, at only 1 per cent of the global total, the volume of factoring business in Africa had risen four folds from about five billion Euros in 2000 to about 23 billion Euros in 2012.

Declaring the seminar open, Dr. Michael Gondwe, Governor of the Bank of Zambia, had said given the challenging and highly competitive global trading environment and the evolving nature of international trade finance, better use of opportunities available for factoring could be achieved through acquisition of knowledge and skills.

That would, in turn, increase Africa’s share of global factoring business and enable factors to receive the full benefits provided by factoring.

Dr. Gondwe noted that because factoring helped corporate entities and SMEs that were performing well to gain access to credit without having to offer collateral or provide security other than the receivables generated in the normal course of their business, the instrument offered solutions for unlocking economic development and supporting African SMEs operating in export value chains.

The seminar, which was attended by about 80 legislators and regulators, sought to heighten awareness about factoring in Africa and to begin the groundwork toward a facilitative legal and regulatory environment across the continent.

Factoring is a trade finance tool under which a seller assigns his receivables (invoice) on a transaction to a factor who pays him an agreed value. The factor assumes ownership of the receivables and then collects the actual payment for the service/product from the buyer.

A similar seminar for regulators and lawmakers from West and Central Africa was organised by the Bank in Nigeria’s economic capital city of Lagos in June.


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