By: Bryan Ramaphane
In his maiden Budget Speech, Vice President Ndaba Gaolathe issued a call to action that could shape the future of Botswana’s private sector. He acknowledged that small and medium-sized enterprises (SMEs) remain blocked from meaningful participation in the national economy due to persistent barriers in accessing finance. He emphasised the need to improve SMEs by addressing bottlenecks such as a lack of access to finance.
That constraint is neither abstract nor anecdotal. It is systemic and measurable. As of November 2022, data from Statistics Botswana showed that small businesses made up 46% of all enterprises, followed closely by micro-enterprises at 45%. Medium and large entities combined represented just 9% of business activity. Yet, a 2019 survey found that only 8% of SMEs had obtained funding from commercial banks, while 55% were entirely excluded from credit access. For a country seeking to empower its private sector and strengthen its resilience, this reality is unsustainable.
Factoring is a well-established financial tool across many jurisdictions that can offer a viable alternative. It allows a business to sell its unpaid invoices (receivables) to a financial institution, known as a factor, in exchange for immediate cash. Unlike loans, factoring does not create debt or require traditional collateral. Instead, it enables businesses to unlock liquidity already embedded in their operations. Factoring is particularly suited to SMEs, which often struggle to meet conventional loan requirements but may have strong sales pipelines and creditworthy customers.
Despite its global success, factoring remains underutilised in Botswana. Commercial banks do provide some form of receivables financing, but uptake is low. Many SMEs are unaware of it or ineligible because they lack the proper documentation and accounting systems. More critically, the broader regulatory framework is unfit to support factoring as a mainstream financing mechanism.
The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) Act makes only a passing mention of factoring by including it under the general umbrella of finance company activities. It fails to define what factoring saves by requiring factoring companies to be licensed as Non-Bank Financial Institutions. There is no clear law governing the rights and responsibilities of parties, enforcement mechanisms, or standards for cross-border assignments. As a result, factoring transactions are currently regulated through general contract law, which is insufficient and unpredictable for commercial finance.
This ambiguity has broader implications. Without clear laws, factoring providers face heightened transactional risk. SME clients are left without legal protection or recourse. Courts are given no guidance on how to interpret or enforce such agreements. The result is a fragmented, uncertain environment that discourages entry, innovation, and investment in receivables-based finance.
Recognising these constraints, the World Bank, in its 2023 report on Botswana’s access to finance, made specific recommendations. It urged the government to develop a dedicated legal framework for factoring, one that defines the transaction, provides a statutory basis for assignment of receivables, and introduces predictable default rules for the involved parties. It concluded that a legal framework would enable the judiciary to support the commercial reality of factoring.
The need for legal reform is now tied to a much larger national agenda. As Botswana accelerates its Economic Transformation Program, which is aimed at stimulating economic growth, increasing private sector participation, and diversification, modernising financial laws becomes imperative. In this context, factoring represents more than a niche financing tool. It is a strategic lever.
By unlocking working capital, it can empower SMEs to meet domestic and regional demand, scale up production, and invest in innovation. For Botswana’s transformation vision to materialise, financial inclusion must be matched by legal certainty. That includes expanding the toolkit of accessible financing options for SMEs and ensuring those tools are backed by robust legal protections
Other African countries have already begun to act. Cameroon enacted a comprehensive factoring law in 2014, clarifying definitions, enabling electronic assignments, and affirming the factors’ rights to collect receivables. Francophone West African states, including Côte d’Ivoire, Senegal, Benin, and Niger, adopted a uniform legal framework developed under the leadership of the Central Bank of West African States (BCEAO), which is based on the African Export-Import Banks (Afreximbank) Model Law on Factoring. This model was designed specifically for African legal environments, accommodating both domestic and cross-border factoring, recognising future receivables, and allowing for non-notification to debtors.
Botswana can follow suit. The Afreximbank Model Law provides a detailed but flexible framework that Botswana can use to craft its own tailored legislation. It establishes substantive rules on the nature of the factoring contract, the rights and duties of the parties, assignment procedures, and protections for third parties. Critically, it harmonises factoring with international trade law while allowing national regulators to fill in jurisdiction-specific laws.
