The CBN Has Partnered With Afrexim Bank And Others To Improve MSME Finance
The Nigerian Central Bank has teamed up with the African Export-Import Bank and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) to launch a ‘factoring’ initiative, an alternative financing option for tiny, small, and medium-sized businesses in the country.
Factoring is a systematic financing device that provides funding for bills of purchase requisitions that have been completed but have not yet been paid. It is a strange idea in many nations, like Nigeria.
Its goal is to help MSMEs bridge their financial gaps while expanding their worldwide business potential.
Ibrahim Hassan, Acting Head of the Central Bank’s Financial System Strategy branch, noted that with small firms accounting for nearly half of the country’s GDP, freeing liquidity through factorization will greatly increase their contribution to the Nigerian environment.
According to him, the Institution remains committed to enabling smaller companies in Nigeria, particularly through the provision of low-cost loans.
“From the FSS’s viewpoint at the Central Bank of Nigeria, we recognize that the aim of economic development and growth cannot be realized without MSMEs.”
“In terms of GDP contribution and job creation, SMEs are the engine room of any economy, and without a strong foundation, nothing much can happen in our economy.” So we’ve come to look upon factoring as a useful tool for providing operating capital to small businesses.
“Although factoring is gaining traction in many countries as an alternative source of funds for small firms, it is still in its infancy in Nigeria. We will guarantee it succeeds by collaborating with other partners,” he said.
Samuel Bamidele Philips Research Limited, who presented the study’s report in Abuja on Wednesday, said factorization as a financial asset ensures that smaller companies have simple access to cash flow after producing supply and submitting bills.
“However, the factor (financing agency) keeps a portion of the pending invoices,” he explained.
High borrowing rates, a lack of security, a bad credit rating, and poor governance policies, per the research, have all created substantial challenges to the development of small enterprises in Nigeria.
It claims that a well-developed credit insurance system and information infrastructure are essential for de-risking the factored industry. It also necessitates major capital allocation and private enterprise engagement.
“Factoring might provide MSMEs in Nigeria with $1.5 and $2 billion in funding per year.” Trade financing is more countercyclical, and it can be a lifeline for businesses in trouble or during a slump.
“Using factoring financing tools to provide essential operating cash will assist businesses in overcoming the problem of obtaining conventional bank borrowing,” Bamidele stated.
Quickly the approval of factored consignments and receivables financing bills through the National Assembly, he added, would boost the prominence of factoring, give legal underpinning, and instil strong market confidence.
Marcus Wauschkukn, GIZ’s head of the programme for SEDIN, said that access to finance for small firms had continued to be a major concern highlighted by the administration, industry leaders, and financial institutions at large.
“One such creative form of funding that industry representatives are examining is factoring,” he says, citing the difficulties of accessing finance for MSMEs’ hunt for novel and alternative sources of funds.
“The popularity of factorization in some African countries is already piquing the interest of industry participants.”
“SEDIN is collaborating with the central bank’s FSS department to encourage lobbying and the development of a legal and regulatory framework to support the expansion of Nigeria’s factoring business.
“We’re expanding our approach to small business financing by looking into alternative financing options such as factoring, crowdfunding, and gear leasing,” he said.