A supply side view of factoring as a financing method for SMEs in Kenya
Date
2013
Authors
Maina, Kenneth Muchiri
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The trade receivables of a typical SME constitute 21%-35% of its assets. Trade receivables
provide an opportune alternative from the more traditional borrowing methods that SMEs
use to obtain financing. That alternative is factoring. Factoring is a financial service
enabling enterprises to sell their accounts receivable to a factoring company in exchange
for cash. This study explores the supply side of factoring by banks in Kenya by looking at
the profiles of enterprises receiving factoring services and the criteria that banks consider
in making the decision to factor receivables. The study establishes that only about a third
of banks in Kenya are offering factoring services. The study also finds that factoring
services are provided exclusively to SMEs. Using correlation, the study also determines
that in arriving at the decision to factor accounts receivable, banks in Kenya consider the
creditworthiness of the SME’s accounts receivable. Factoring as a financing method draws
its security from the receivables of the enterprise and not the financial health of the
enterprise itself. Given the growth of factoring in the world, Kenya through its financial
intermediaries, government and other agents must exploit the opportunity that factoring
provides to drive the rapid growth of SMEs.
Description
Submitted in partial fulfillment of the requirements for the Degree of Masters of Commerce
Keywords
Supply Side View, Factoring, SMEs, Kenya, Financing Method