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Tuesday, 19 March 2019

Factoring could provide the solution to close the SME funding gap- Afreximbank

The second-oldest profession could help SMEs grow in Egypt and Africa: Factoring could be a viable and sustainable solution to address the funding gap for SMEs in Africa and help them grow, the African Export-Import Bank (Afreximbank) has stated. Africa accounted for less than 1% of global factoring volumes in 2017, although it has shown rapid growth in concentrated areas, including Egypt, Tunisia and Morocco. But senior members of the bank have argued that factoring is an important alternative to other financing solutions, such as bank loans, and could help to overcome impediments such as a lack of access to appropriate finance. Factoring volumes across Africa are predicted to reach some Euro 200 bn by 2021.

So what is factoring? Sell your invoices at a discount to a third party — called a factor — who goes on to collect them instead of you. As factors effectively extend credit to the customers of a business, the financial status of the business itself won’t necessarily be of concern to the factors. This means that businesses that do not qualify for loans, for instance, may still be able to factor — as long as their customers are creditworthy.

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