By Mr. Jeffrey Onganga, Media Officer, Pan African Parliament
The African Capacity Building Foundation (ACBF), which is the African Union (AU)’s Specialized Agency for capacity building, and the African Export-Import Bank (Afreximbank) have engaged the Pan-African Parliament, through the Committee on Monetary and Financial Affairs, to consider the adoption of a Model Law on Factoring.
The Model Law on Factoring was developed by Afreximbank and was identified as one of the instruments to support its Intra-African Trade Strategy and Industrialization and Export Development Programme under its 5th Strategic Plan because of the increasing opportunities for factoring in Africa. Afreximbank is collaborating with ACBF to develop tailor-made certification programmes on Factoring as well as support law makers and regulators with various forms of sensitization campaigns and outreach on the Model Law.
In his presentation to the PAP Permanent Committee on Monetary and Financial Affairs, Mr. Enga KAMENI, Senior Manager: Legal Services Department at Afreximbank indicated that in the current context of insufficient trade financing resources, Factoring becomes a viable alternative to promote trade on the continent. He defined Factoring as a unique blend of services designed to ease the traditional problems of selling on open account terms. Factoring is based on the idea of selling/ assigning a business’s outstanding receivables (sales invoices) to the Factor and receiving a set of trade related services.
“One of the constraints impeding the growth of Factoring in Africa has been the absence of a facilitative legal and regulatory environment for factoring to thrive. The Model Law was developed to guide law makers in various African countries in preparing and introducing relevant pieces of legislation in their respective jurisdictions. We will continue to work with the ACBF in engaging the PAP in a bid to disseminate and get African Parliamentarians to adopt the Model Law. This has become crucial given an opportunity for factoring through intra-African trade presented by the African Continental Free Trade Area (AfCFTA),” said Mr. Kameni.
Mr. Peter MULROY, Secretary General of FCI, the Global Representative Body for Factoring and Financing of Open Account Domestic and International Trade Receivables, told African Parliamentarians that Africa, the “future” where the Factoring is expected to grow rapidly, adds up to over 24 billion euro with a growth of 10%, largely thanks to the contribution of the older players like South Africa (+12%) and Egypt (+14%).
“World factoring statistics indicate that the Factoring and Receivables Finance Industry volume shows solid growth, with all regions indicating positive trends. The industry found an accelerated gear in 2017 and 2018 with a 9% and 6% increase respectively, and again in 2019 which grew by 5.4% another fine year,” said Mr. Mulroy.
Hon. James GONY, Chairperson of the PAP Committee on Monetary and Financial Affairs welcomed the initiative and the prospect of a Factoring Model Law for the continent. Hon. Gony signaled his Committee’s commitment to work with Afreximbank and ACBF to finalize the process and ensure that it is adopted the PAP Plenary.
“Our Committee is tasked with advising Parliament on economic, monetary and investment policies. Factoring presents an opportunity to boost Africa’s trade especially given the rise of the African middle class. We will therefore ensure that the Model Law goes through the appropriate process which includes the adoption of the report of this meeting and thorough consultations with stakeholders before its adoption by the PAP Plenary.” Said Hon. Gony.
Afreximbank and ACBF stress that the Factoring industry has enjoyed a long history with a low record of credit losses and continuous stable growth. As an alternative form of traditional trade finance, Factoring has been described as one of the very few mechanisms within the wider financial services industry whereby a financial institution purchases the assets from the SME client, in this case the account receivables and all of their underlying rights, including the right of collection of payment from the debtor/customer.
As part of its ongoing virtual consultations, the PAP Committee on Monetary and Financial Affairs also received a briefing on the proposed Model Law on Cooperatives in Africa. In 2019, the International Cooperative Alliance and the PAP Committee engaged on the possibility of adopting a Model Law on cooperative enterprises for African countries to promote the relevance of cooperatives in socio-economic development in Africa, and obligations towards States and other stakeholders, specific to cooperative development. The follow-up meeting served to determine the next steps of the Model Law formulation process.