Factoring and financial leasing can play a critical role in reviving small and medium-sized businesses in Egypt, said an official in the German Agency for International Cooperation (GIZ) on Wednesday.
Egyptian government has to focus more on these two tools and increase the awareness of their powerful role in providing SMEs with much needed term-financing, Nihal Hassan, Advisor of Promotion of Access to Finance for SMEs at GIZ, said at a conference in Cairo.
GIZ has several programmes to develop and give technical and financial support for small businesses, Hassan added.
She stressed the importance of having an integration between local and foreign non-banking financial institutions to revive factoring and financial leasing much more in the Egyptian market.
Factoring is considered an important financing alternative for SMEs because it provides an integrated service that includes the purchase of the small or medium enterprise’s trade-related receivables, trade bill collection, and administration. These services allow SMEs to take advantage of strong growth opportunities and overcome capital and access-to-finance constraints.
As for leasing, it enables SMEs to leverage an initial cash deposit with the inherent value of the asset being purchased acting as collateral. It helps bring in small businesses into the formal financial system. Once informal businesses have access to lease financing, they begin building a history of financial transactions. When the appropriate credit information-sharing infrastructure is in place, banks and other financial institutions can access these records, better manage risks and start providing widespread financial services to these small businesses. With this new opportunity, small businesses also find additional incentives to join the formal sector.