Factoring in Africa to Support Trade Development: Challenges and Opportunities for Growth through Capacity Development

This occasional paper is about factoring, known as the selling or transferring of accounts receivable to secure funds that are immediately available. The process provides a solution to address the financing gap for Small and Medium Enterprises (SMEs) to support trade development as part of the African Continental Free Trade Agreement (AfCFTA) and Africa’s structural transformation agenda. The study is based on an extensive review of the literature and an analysis of secondary data from FCI database and other materials collected on factoring to identify key issues, trend, progress, drivers, and barriers affecting factoring in leading African countries. The paper shows that factoring represents an alternative source of financing for African businesses to increase intra-African trade under the AfCFTA. Other findings include low Africa’s share in global factoring and growth rate in factoring, and low factoring GDP penetration rates of leading African countries. The paper notes that Africa’s performance in the factoring market needs to improve significantly based on a number of key indicators. However, factoring activities are projected to reach US$50 billion by 2025 in Africa with a number of small-sized factoring companies emerging in other African countries. For this to be achieved, a coordinated approach to capacity development is needed to address the barriers identified.