Zimbabwe must enact a law that enables the sale of unpaid invoices at a discount as source of funding for small to medium enterprises, experts have said.
SMEs have been struggling to access funding as they do not have the collateral required on loans.But experts told a two-day regional conference on factoring, receivables financing and credit insurance in Southern Africa which ended in Harare on Tuesday that there is a way out of the wood for SMEs.
However, they said the sale of the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers at discount, commonly referred to as factoring, will be propelled by an enabling legislation.
"The law is an enhancer in terms of getting more participants and increase the volumes. In countries with factoring laws, the volumes have tripled," said Enga Kameni, Afreximbank's senior manager legal services.
Milanda Manjengwah, managing partner at Dube, Manikai & Hwacha Legal Practitioners, said factoring required an efficient lega system.
There is also a need for the establishment of electronic registries for investors to carry out their due diligence processes, she said.
Venturing into the factoring business requires confidence, according to Isaak Manikai, an associate at Dube, Manikai & Hwacha Legal Practioners.
"We need to use model law to develop our own domestic legislation. We need to have our own Factoring Act," Manikai said.
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Afreximbank has come up with a model law that has been used by seven countries to come up with domestic legislation.
Countries that have domestic legislation have recorded increase in volumes, for example, Egypt, according to Frederick Seidu, Afreximbank's senior specialist Intra-African trade.
The north African country introduced a domestic law on factoring in 2018.
"Since 2018, the number of factors have increased from 6 to 33 and volume has more than doubled from US$500m to US$1,2 billion," Seidu said, adding that Afreximbank was working with the Pan African Parliament to come up with with a standard legislation.
Kameni said Afreximbank will in the coming weeks engage the governor of the Reserve Bank of Zimbabwe John Mushayavanhu on the factoring legislation.
However, the push for legislation is not the prerogative of the central bank alone as it is a collaborative duty which encompasses Parliament, bankers association and non bank financial institutions, he said.
A model law on factoring that enabled countries to create a conducive legal and regulatory environment was developed in 2016 and has since been used by seven countries in passing factoring laws.
There are five factoring companies in Zimbabwe. Of these, two, Harare Receivables Exchange and Quest Financial Services, are members of FCI, the global representative body for the factoring, invoice financing and asset-based lending industry.
