LAGOS – The Vice-President, African Export-Import Bank (Afreximbank), Dr Benedict Oramah, on Friday urged central banks and regulators in Africa to evolve regulatory and legal frameworks to ensure that factoring thrived.
Oramah made the appeal on Friday in Lagos in an interview with the News Agency of Nigeria (NAN) on the sidelines of a one-day seminar entitled “Factoring in Africa: Legal and Regulatory Environment’’.
Factoring is a financial transaction in which a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount.
Oramah said that few efforts done by Afreximbank had revealed that inadequate regulatory and legal frameworks were impediments hindering Factoring in Africa.
He also said that another challenge was unawareness about it in African countries.
“Major challenges facing Factoring in Africa are the inadequate regulatory and legal framework because Factoring is a new framework in the continent, so, the enabling laws are not there.
“The central banks and the regulators have not defined any regulatory framework on how to regulate the activities in the sector.
According to him, Afreximbank introduced Factoring because of its importance as an instrument used to boost inter-trade businesses in Africa and for it to be understood and available.
Oramah said that Factoring was essentially an instrument that helped to finance the activities of Small and Medium Enterprises (SMEs) in international and local trades, especially in the supply chains.
He said that Afreximbank’s interest was meant to support trade and those activities that entered international trade directly or through indirect means by import and export supply chains.
Oramah said: “There is the issue of awareness where bankers are not aware of the products, the regulators are not aware too and the reasons are not far-fetched.
“In the industry, there are those things called the factorable products and these are things that made people to go into factorable businesses.
“Prior to recent years, there were few factorable products in Africa. There were the issues of risk.
“International factoring companies could not come to Africa because they perceived that African countries have individual risk and they were never prepaid to take those risks”.
He said the international factoring companies did not know the potential of the African markets which made the continent in the past not to have a major boost of the activities.
Oramah, however, said that recently there had been a major change in the sector which had led to developments in the continent.
Oramah said that improvement in the economic performance and reforms that had taken place in African countries had made “Factors” to become interested in doing business in Africa.
He said there were two main bodies that promote Factoring around the world and they were International Factor Group (IFG) and Factor Chain International (FCI).
He said: “Prior to four or five years ago, these bodies never considered Africa as a market but things have changed.
“They have identified Africa as a new frontier for Factoring and they are beginning to invest time and efforts toward achieving that.
“Afreximbank is a member of IFG, while the FCI have designed the programme to promote Factoring in Africa,’’ Oramah.
He said the African Development Bank (ADB) had been supporting the bank (Afreximbank) on the Factoring companies in Africa, especially as regards improving the regulatory and legal framework.
The seminar was organised for legislators, central bankers and `Factors’ in West and Central Africa to discuss the constraints and share experiences in different markets where such legal backings exist.