The German Corporation has said micro, small and medium sized enterprises (MSMEs) contribute 60 per cent of employment in Nigeria.
In a research and survey in partnership with the Central Bank of Nigeria, the Financial System Strategy 2020, AfreximBank and Nigerian Export-Import Bank (NEXIM), the corporation said more has to be done to address the challenges being faced by MSMEs.
It therefore advised operators to embrace factoring.
It describes factoring as a trade finance instrument that provides funding for the invoices of purchase orders that have been delivered but are yet to be paid. It ensures producers, service producers or traders under MSMEs have quick access to cash flow after making supplies and using their invoices.
In his lecture in Abuja, yesterday, titled: “Validation on the report of diagnostic study to the factoring industry in Nigeria,” lead consultant of Philip Consulting Limited, Mr. Bamidele Samuel, said factoring could unlock between $1.5 billion to $2 billion per annum in financing to MSMEs in Nigeria.
He said establishing proper assignment laws in support of factoring would significantly boost investor’s confidence, who are concerned about redress in courts and attempts to recoveries from their rights as owners of the debts.
“Despite the significant contribution of MSMEs on the country’s Gross Domestic Product (GDP) of 49 per cent and contributing over 60 per cent to employment, MSMEs in Nigeria still face subsisting structural changes undermining the sectors growth potential.
“Some of the identified inherent credit challenges include high interest rates, lack of collateral, credit rating, poor governance, etc.
“Factoring could unlock between US$1.5- US$2 billion per annum in financing to MSMEs in Nigeria. Trade financing tends to be more cyclical and serves as a vital financing tool particularly when firms are in distress or during an economic downtown,” he added
However, Samuel stated that factoring industry is an unregulated and weak legal environment without any specific guidelines and may great bad reputation for a product.
To forestall this, he said there’s need to fast track passage of the factoring assignments and receivables financing bills at the National Assembly which will raise the profile of factoring, provide legal backing and impose string confidence in investors.
Others are “Factoring regulations addresses inherent complexity by defining the concept of factoring, the scope of the license as well as prioritising constant awareness and workshops.
“Drive policy advocacy by key actors in the industry that will unlock opportunities in the credit insurance market.”