Afreximbank and the African Development Bank have agreed to support the development of factoring in Africa with a US$950,000 grant commitment.
Signed at the Afreximbank annual meeting in Abuja last week, the two institutions describe the new agreement as a “big step” towards their “unrelenting drive and commitment to continue enabling extra and intra-Africa trade”.
The deal will see the African Development Bank make a US$500,000 investment through its Fund for African Private Sector Assistance (FAPA), while Afreximbank will contribute US$450,000.
The aim of the programme is to upgrade the capacity and skill sets of up to 20 emerging factoring firms through on-site training, provision of back-office support systems and customised manuals for marketing, credit and risk policy, finance and operations. It will also provide advisory services for established factoring companies as well as a platform for them to network, exchange ideas and share best practices.
Factoring is a form of debtor finance in which a business sells its accounts receivable/invoices to a third party (called a factor) at a discount. Focusing on this specific area, the goal of the new programme is to ultimately bring more finance to African SMEs that trade regionally or globally on open account terms.
Afreximbank’s president Benedict Oramah says that the agreement “will reinforce and grow the availability of effective factoring across the continent and increase awareness of its availability”, adding that he sees factoring as a solution to bridge the funding gap facing SMEs in Africa.
Also commenting on the agreement, Ebrima Faal, a senior director at the African Development Bank, emphasises the “multi-sectoral impact of factoring”, and expects the agreement to benefit firms particularly within agriculture, manufacturing, telecoms and power generation.
The two institutions have already identified a number of the “emerging factoring firms” that will be supported under the programme, but these have not been publicly named.