As part of the search for solutions to the huge trade finance deficit in Africa, Afreximbank proposes factoring as one of the sustainable solutions. A little-known practice, Africa currently accounts for less than 2% of global factoring volumes. With the right communication and partnerships, African import-export bank Afreximbank hopes to bring this practice to Africa.
It’s a little-known financial practice in Africa, but one that experts believe can be an incredible solution to the continent’s trade financing problems. Factoring is widespread in other parts of the world, but Africa accounts for only 1.3% of global factoring volume, even though factoring volumes in Africa continue to grow steadily.
“Today, thanks to the efforts we’ve made, the strategies we’ve developed, the partnerships we’ve forged, the work we’re doing in the legal field and the financing that we are providing, volumes have increased considerably. When we started our awareness campaign, there were only three countries that were doing factoring; South Africa, Morocco and Egypt, but today we have 18.”
Kanayo AWANI, Executive Vice President of Afreximbank – Nigeria
Apart from the number of countries, the volume of factoring transactions has also grown exponentially, with 2023 seeing a notable increase of 13.5% compared to 2022, reaching a total volume of 47,5 billion euros.
“It’s a very simple process. Let’s say you’ve provided services that have been approved by the beneficiary, so you issue an invoice and wait for payment, which is where factoring comes in. Because very often, what we call the final payer, the beneficiary of these services, will pay you after a certain number of months, but in the meantime you have fixed charges. You have to pay salaries, electricity, water and so on. That’s where the factor comes in, to provide the necessary cash, as soon as there is subrogation, meaning that the invoices issued become the property of the factor. In the case of factoring, Banque Postale plays the role of factor.”
Callixte Médard TABANGOLI, Chief Executive Officer of Banque Postale du Congo – Republic of the Congo
According to figures from FCI, the global representative body for factoring, South Africa remains the dominant player in the African factoring landscape, accounting for 85% of the continent’s volume, followed by Morocco and Egypt with 6% and 3% respectively. Mauritius and Tunisia each contribute 1%.