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The African continent is one of the most intriguing regions for the factoring industry in 2024. According to the FCI Annual Review, while Africa only represented a 1.25% share of the global factoring volume in 2023, it experienced a 13.5% increase from the previous year.
The continent is ready for even more growth, and there are reasons to be optimistic regarding the market. However, active participation and innovative solutions are required to create a robust factoring industry. At FCI’s 56th Annual Meeting in Seoul, Trade Finance Global (TFG) spoke with Neil Shonhard, CEO at MonetaGo, and Nassourou Aminou, Regional Director for Africa at FCI, to learn more about collateral registries and the keys to factoring growth on the African continent.
Promoting collateral registries to drive growth
Collateral registries (a centralised database where trade finance transactions are registered for various reasons) and other critical trade finance instruments to help grow factoring volumes were high on the agenda at the FCI meeting in Seoul.
Shonhard said, “The collateral registry is a registration of the security or ownership of a transaction. This would allow greater transparency by, for example, allowing you to see who has a lien on a transaction so you can use that information for things like fraud prevention analytics.”
Aminou said, “In Africa, we lack reliable information and because of this, there is a lack of trust internationally. We need to develop reliable information, and we need credit insurance. These are vital to the growth of the African factoring market.”
Collateral registries can help address this at both domestic and international levels.
When suppliers provide services to buyers, it is often not possible to know whether payment has been made on time, particularly in jurisdictions without laws on late payments. To have collateral, it is critical to have real-time data available to both the supplier and buyer.
This is where collateral registries, which can enable trade credit insurers to participate more freely in factoring, could prove key for factoring in regional markets and improving intra-African trade.
Shonhard said, “The lack of data for a trade credit insurance company or an underwriter means a lack of trust. They need a history of good and bad actors, good and bad trade corridors, and a history of payment terms.”
Such standardised and automated information would increase underwriting and liquidity, promoting transparency and creating greater confidence for lenders and underwriters.
This is an area where technology will make a major contribution, but not all technologies are created equally.
Technology as an enabler and the limits of blockchain
When it comes to implementation, technology is a key part of any future factoring developments. While blockchain retains potential for the industry, its descent from the Gartner Hype Cycle’s Peak of Inflated Expectation means it is no longer being touted as the catchall solution to all of the industry’s challenges.
Shonhard said, “Speaking frankly, there has never been a successful registry with blockchain as the underlying technology. If we are talking about a collateral registry on a continental scale, blockchain is not the answer.”
The main reasons are the technology’s lack of scalability and high costs.
Shonhard added, “For any solution to gain true scale, it needs to be as cheap as possible, especially in trade. On the African continent, we want a solution that is cheap (if not free) for all to use so that it will have mass adoption and, therefore, effect.”
These limitations of the technology paired with Africa’s unique requirements mean that providers are turning to other possible technological infrastructures to tap into the continent’s growth potential.
Africa is the key growth region for factoring
Collateral registries and credit insurance will influence Africa’s factoring growth. If companies on the continent can leverage technologies in factoring processes, this will lead to a significant development of trading activity in the region.
Aminou said, “It is very important to use those tools because we can gain a part of the market share with the technology. They can help us to see the growth of factoring and give more comfort to underwriters to give more cover on credit insurance.”
Currently standing at 1.25% of global factoring activity, Africa’s growth potential is vast.
Shonhard said, “There is probably nowhere on Earth that has the potential for growth like the continent of Africa. Implementing technology would have a great deal of economic benefit here.
“Things like collateral registries and deployments of other technologies would also be a great catalyst for trade digitalisation to drive harmonisation or standardisation of trade data, further impacting African trade. The growth potential would affect hundreds of millions of lives.”
With rapid growth and creative technology use cases on the horizon that have the potential to raise the living standards of countless people, it is no wonder that Africa is one of the most intriguing regions for the factoring industry in 2024.
