THE Reserve Bank of Zimbabwe (RBZ) will keep driving the “factoring initiative” to unlock liquidity for small-to-medium enterprises (SMEs), as collateral remains a hurdle for them to secure loans.
Factoring is a type of finance in which a business sells its accounts receivable (invoices) to a third party to meet its short-term liquidity needs.
The third party would then provide liquidity to the firm as the company would pay back using the money they would later receive through the account receivables.
According to the RBZ, SMEs account for only 4% of the total loans, despite them making up an estimated 70% of the economy.
Officially opening the regional Conference on factoring, receivables and credit insurance in southern Africa, on Monday, in Harare, RBZ deputy governor Jesimen Chipika said collateral remained a key challenge for SMEs in securing funding.
“In Zimbabwe, around two-thirds of our GDP (gross domestic product) is from SMEs. But, it is sad to note that only 4% of loans in the country go to SMEs. This is because access to collateral has remained a key constraint. We are hoping that the factoring initiative will unlock financial opportunities for SMEs,” she said.
“We also instituted the collateral registry and we have seen notable progress. SMEs contribute significantly to employment and serve as a source of income to the majority of people in developing countries. SMEs are also a substantial contributor to overall value added in most economies.”
She said in Africa, SMEs employed about 80% of the continent’s workforce.
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“SMEs are described as the engine of growth for the continent, but access to sustainable finance has been singled out as the key constraint to growth and development of SMEs in Africa. In this regard, SMEs are noted to face greater financing obstacles than larger firms, with higher transactions costs and higher risk premiums,” Chipika said.
“Accordingly, developing market economies including Africa continue to explore viable and sustainable financing options in support of SMEs. It is against this backdrop that the relevance of factoring in Africa is highlighted as an alternative financing option for SMEs.”
The factoring initiative is being employed by several central banks, among them, the Central Bank of Egypt/Financial Regulatory Authority, The Central Bank of West African States, The Bank of Central African States, and the Central Bank of Nigeria.
Factoring is projected to offer many circumvent challenges that include disrupted supply chains, strain in retail business, increased risk, liquidity squeeze and withdrawal of banking credit from Africa.
The African Export–Import Bank (Afreximbank) vice-president, Intra-African Trade Bank, Kanayo Awani said factoring provided an important alternative to the other traditional financing sources available for SMEs like bank loans, leasing and venture capital.
“We at Afreximbank wholeheartedly believe that factoring, a form of commercial finance whereby a business sells its accounts receivable at a discount, provides a viable and sustainable solution to address the SME financing gap, and will help innovative SMEs grow and in turn support job creation and Africa’s structural transformation and trade development,” she said.
“And while factoring is globally acknowledged as an alternative form of financing to SMEs as evidenced by the €3,7 trillion global factoring volumes, a recent study by Afreximbank into the financing schemes employed by SMEs in Africa, showed that only 90 of the 2895 sampled (representing 9,2%), used factoring as a financing option.”
