Factoring As a Means of Promoting Small and Medium Scale Enterprises: The Case for a Legal Framework for Credit Factoring in Ghana

by | Jun 9, 2020 | Research, SME | 0 comments

Factoring as a means of promoting small and medium scale enterprises: The case for a legal framework for credit factoring in Ghana

This research is underscored by the fact that there is a dearth of literature on the legal framework of credit factoring in Ghana. This is despite the reality that factoring provides an opportunity for small and medium scale enterprises (SMEs) to access finance with fewer constraints in promoting the growth of SMEs globally. The financial sector of Ghana has seen major reforms in recent years and, in principle, have the capacity to nurture SMEs to thrive on leading in the expected economic progress of the country. In this regard, the challenge of access to capital to facilitate the activities of businesses surfaces as the critical issue, which must be addressed with a sustainable alternative.

This research examines the legal framework and regulatory protection for credit factoring as an alternative means to access capital in Ghana. It employs qualitative tools by analyzing secondary data to conclude that, a well-developed factoring framework and legal environment for factoring will adequately protect SMEs and create an alternative pathway to a more sustainable finance source in order to promote and spur the growth of such businesses.  Furthermore, factoring has been a significant financing scheme in most developed nations and some African countries, unlike the situation in Ghana, which lacks in legal and institutional provisions on factoring that will adequately regulate the commercial industry in order to promote and actualize SMEs.

The enactment of good factoring law will give impetus to convenient access to finance and broaden the scope of facilitation of SMEs and their activities within the factoring enterprise. This research recommends the adaptation of the Afreximbank’s model law on factoring, which is based on the Factoring Chain International standard, as a foundational basis for creating a legal framework on credit factoring in Ghana.

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Francis Korankye-Sakyi is a Development and International Trade Finance Expert: LL.M in International Trade and Investment Law (University of Pretoria, South Africa) M.A. in Governance and Sustainable Development, LL. B, B. Ed (University of Cape Coast, Ghana)

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