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Al Borsa Newspaper

Factoring activity is expected to achieve strong growth during the next five years.

Advisors in the Factoring sector see that the reason for the limited growth of the activity in spite of the fact the relevant law regulating the activity has been issued more than two years ago is the weakness of the relevant advertising campaigns and the low level of publicity that makes the private sector and companies aware of the different benefits of factoring.

They added that it is too early to say that factoring activity has failed in the local market as this new activity has been actually introduced into the market at the beginning of this year. The law that regulates the factoring activity was issued in 2007 and since that time the General Authority for Investment and Free Zones (GAFI) which regulates factoring has been establishing the rules and regulations for such activity. GAFI has now been merged into the Financial Services Authority (FSA) that regulates the financial non-banking activities.

Ahmed Shaheen, the General Manager of Egypt Factors stated that factoring activity will be growing quickly in the coming period and it is expected that a large number of the companies specialized in the factoring activity will join the local market specially that it is a large and promising market.

Mr. Shaheen indicated that it took Egypt Factors a whole year since GAFI officials did not have enough awareness and information about the factoring activity and they held a group of meetings with senior officers of international factoring companies in order to get to know this activity, develop the relevant rules and regulations and review factoring contracts.

He confirmed officials currently display a larger interest in non traditional finance activities and they aim at expanding the activities of factoring and financial leasing and he added that getting a license to exercise the factoring activity will not require much time now specially that the responsibility of regulating the activity has moved from GAFI to the Financial Services Authority.

Mr. Shaheen added that a group of fruitful meetings was held with the board members of the new Authority chaired by Dr. Ziad Bahaa El Din. The most important benefit of such meetings is that the board of directors of the new Authority confirmed their support to the factoring activity specially that it provides finance to the small and medium enterprises and this is one of the objectives of the FSA in the coming periods.

Mr. Shaheen expects that factoring will achieve higher growth rates during the coming years in view of the government interest in this activity indicating that the international volume of activity has reached 1.3 trillion Euros and it is continuously increasing and he expects that the factoring portfolio will reach US $ five billion as a minimum.

He indicated that local factoring achieves high growth rates in the international markets and possess 70% of the international factoring portfolio, in the second level comes export factoring but the local market indicates reverse results as export factoring has a higher share.

Export factoring possesses a higher share of the local factoring portfolio contrary to all other countries having factoring activity as local companies are not aware of factoring and its advantages while export companies that deal with European and US markets where factoring activity is prevailing.

Mr. Shaheen expects that during the next two or three years local factoring will possess the international well known percentage in the local market.

Mr. Essam El Din Nafae, the General Manager of Small and Medium Enterprises at the Bank Credit Risk Guarantee Company says that factoring is a new product that was introduced into the local market to complement the larger Finance system that includes banks, financial leasing, export guarantees and factoring in addition to funds and they all aim at providing the funding required for the growth of companies.

Mr. Nafae also added that factoring is one of the means of providing specialized large volume of funding for small and medium enterprises, therefore the Credit Risk Guarantee Company has developed some prerequisites that the company should have in order to be eligible for factoring services. The company’s capital should not be less than L.E. 40,000 and no more than L.E. 40 million excluding lands and buildings.

He also added that factoring activity has been recently introduced in the local market and has actually started at the beginning of this year. It needs more effort and promotional and advertising campaigns in order to make consumers and clients aware of this new activity and realize how it contributes to the development and growth of companies and increase its profits in a positive way.

Mr. Nafae added that factoring provides the client with the funding that is required for the growth of its projects. The funding will be given at an easier and less complicated terms if compared to the banks. Factoring aims at small and medium enterprises that have been recently a point of focus for the Government of Egypt.

Mr. Nafae expects that factoring sector will achieve high growth rates in the coming years. Increasing the awareness of the companies and the private sector and expanding their knowledge about the benefits of factoring is required. In addition, it is expected that a large number of the firms specialized in providing factoring services will start in the local market and this will foster competition and help in spreading the new product.