Financial experts who converged at the public hearing held at the House of Representatives on Tuesday disclosed expressed optimism that the bill which seeks to establish factoring assignment will boost the country’s socio-economic development and enhance financial inclusion.
Patience Oniha, Director General of Debt Management Office (DMO) who chaired the High Level Committee on Financial System Strategy 20202 (FSS 2020) led a team of experts to the public hearing on the bill for an act to establish factoring assignments Act to provide for principles and to adopt rules relating to the assignment of
receivables in order to create certainty and transparency and to promote the modernization of the law relating to assignments whilst protecting existing assignment practices and facilitating the development of new debtors in order to promote the availability of capital and credit and to facilitate domestic and international trade and for other related matters.
According to the document submitted by the FSS 2020 Committee, noted that factoring is a complete international trade financial package that combines export working capital financing, credit protection, foreign accounts receivable book keeping and collection services.
“Factoring is recommend for continuous short-term export sales of consumer goods on open accounts: it offers 100% protection against the foreign buyer’s inability to pay with no deductible or risk sharing.
“It is an attractive option for small and medium sized exporters, particularly during periods of rapid growth because cash flow is preserved and risk is virtually eliminated.”
While noting that the MSMEs which contributes over 80% into the Nigeria’s GDP, the FSS Committee, observed that “lack of access to finance remains the principal limiting factor to their business pursuits.”
According to Nigerian Deposit Insurance Corporation (NDIC), the bill will help in the provision of “alternative source of finance instead of bank loans.”
While applauding the intendment of the bill, the Corporation observed that the piece of legislation will “expand the financial services market which is currently dominated by the banking sector.”
The Corporation noted that presently, a significant number of DMBs do engage in outsourcing of some of the middle and back office processes in cash management, IT payment and settlement infrastructure.
It however noted that the provision of section 4(2) of the bill which excludes applicability of the Act to assignment of receivables arising from financial services, including financial trading, “does not prohibit assignment of receivables involving banking transactions, it simply does not govern such transactions.”
While declaring the public hearing open, Speaker Yakubu Dogara noted that the plethora of public petitions received on the floor of the House, relating to breaches in contract terms call for laws and amendments that will protect public and private investments and by so doing, protect and develop the Nigerian economy.
“The power to freeze and forfeit assets vested in the president invariably usurps and erodes the prerogative power of the judiciary to adjudicate and give rulings and orders. For democracy to be truly deepened, all the three-arms of government need be strengthened to effectively perform their constitutional responsibilities,” the Speaker added.
In his remarks, Jones Onyereri, chairman, House Committee on Banking and Currency explained that “factoring which essentially involves the purchase of financial receivables is the conversion of credit sales to cash at a discount.
This will enable the provision of cash flows to SME’s, especially those with quality receivables but may not be in a
position to obtain conventional bank finance due to high interest rates, collateral or credit profile constraints.”
While underling the peculiarities of the Nigerian business environment and its operators, Onyereri harped on the need to ensure that defaulters of factoring agreements are not only prosecuted and sentenced if found culpable, they should be made to cough-up double the amount involved in the transaction.
“Nigerians generally are clever-by-half especially when it comes to business dealings. They look at rules and regulations governingtrading operations and find ways of circumventing them for personal gains. The onus then lies on committee members and stakeholders to take a holistic look at the restitution aspect of the amendment Bill
to effectively block loopholes,” Onyereri urged.
In a presentation, Kanayo Awani, Managing Director, Inter-African Trade Initiative said deliberate efforts were being made to popularize the financial instrument in Nigeria and most parts of Africa to serve as a catalyst to trade and investment growth as is the case in developed economies where factoring had become a norm.
