factoring promotion conference tanzania 2016.pdf
TRANSCRIPT
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With the kindsponsoring of:
With the kindcooperation of:
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AGENDA
What is FCI+: History, Membership and Union
Provider of Global Statistics on Factoring
Building Bridges in New Markets
Developing New Platforms for Growth: Expanding our horizons
Union between FCI & IFG
Education & Communication
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The Evolution of Factoring
-
Comparison: LCs and Open Account Trade
0
10.000
20.000
in b
illio
n U
SD
LCs World Factoring Volume Open Account
13,073
2,818
3,044
1978 1986 1993 2000 2006 2014
2,772
*Factoring figures reported by FCI**LC figures based on a reported -2.6% drop in 2014 volume as reported by SWIFT
-
FCI+ established as non-profit association in Amsterdam in 1968
Formed by 6 Companies in Scandinavia, UK, & US
January 1st 2016 Union between FCI & IFG finalized
Today FCI has over 400 Members in +90 Countries
FCI+: History of the Factoring Association
-
Smlartes: FCI+, ICC and SWIFT
Standard rules for Documentary Trade e.g. UCP
600 for L/Cs & UCPDC for Documentary collections
Standard rules for Open Account trade called General
Rules for International Factoring (GRIF)
Standardized platform for cross border open account t.f.
edifactoring.com (web based)Standardized global platform
GLOBAL
STANDARD
COMMUNICATION
PLATFORM
FCI members can resolve disputes via arbitration
through ICC
Banks can resolve disputes via arbitration through ICC
ARBITRATION
-
Major Trends & Statistics
-
Global Factoring Volume 1994 - 2014
-
500
1.000
1.500
2.000
2.500
1994 1999 2004 2009 2014
(IN EURO BILLIONS)
International Domestic
-
FCI Global Factoring Statistics
2014 by Region
Europe62%
Asia26%
Americas9%
Africa1%
Australasia
2%
Europe Asia Amsericas
Africa Australasia
All figures given in Euro Billions
2013 2014Group rate % change
Europe 1,354 1,463 +8%
Asia 599 615 +3%
Americas 192 207 +8%
Africa 23 21 -9%
Australasia
40 42 5%
Total 2,208 2,348 +6%
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Comparison to other forms of Trade Finance
Factoring, LC & Credit Insurance Comparisons with World Exports 2009-2014 (USD Millions)
2009 2010 2011 2012 2013 2014 CAGR
Cross border factoring 236,607 326,724 355,379 467,860 555,879 588,185 20.0%
World factoring 1,835,489 2,190,002 2,611,371 2,814,004 3,078,643 2,817,263 8.9%
Credit insurance 1,122,608 1,257,794 1,495,227 1,538,609 1,630,925 1,709,579 8.8%
Letters or credit (LC) 2,635,125 2,700,700 2,806,965 2,854,918 3,125,957 3,044,682 2.9%
Total world exports 12,177,642 14,850,565 17,816,372 17 930 469 18,378,730 18,935,210 10.8%
Sources: Factoring figures reported by FCI. World Factoring includes both domestic and cross border factoring volume Short and medium term sovereign credit insurance figures reported by the Berne Union (2014 estimated) The LC figures from ICC/SWIFT study. Swift does not release LC issuance data, but in December 2010 its board agreed to carry out a trade snapshot,
releasing the number of MT700 commercial standby and guarantee messages, including average invoice size. All figures are estimates based on actual data. Except the 2010 figures which are based on the number of MT700 messages issued in the year and the average invoice size for the month of December only. 2009 figures are calculated based on the % change in the number of MT700 messages created year on year. 2014 figures based on a reported -2.6% drop in trade volume over 2013 as reported by SWIFT.
The world merchandise export figures from the WTO
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Europe Factoring Statistics
0
200
400
600
800
1.000
1.200
1.400
1.600
United Kingdom France Germany Italy Spain Other Total Europe
in e
uro
bill
ion
s
2010
2011
2012
2013
2014
YOY 13,8% 13,0% 10,9% 2,8% -3,1% 5,3% 8,0%
5-Y CAGR
12,4% 12,1% 14,6 % 8,1% 1,6% 11,9% 10,8%
* Data from FCI World Factoring Statistics 2014
-
0100
200
300
400
500
600
700
China Japan Taiwan Australia Hong Kong Other Total Asia
in e
uro
bill
ion
s
2010
2011
2012
2013
2014
YOY 7,4% -33,9% -22,4% 5,2% -4,5% 22,2% 2,6%
5-Y CAGR
21,3% -12,3% -3,3% -1,2% 16,4% 26,7% 10,4%
* Data from FCI World Factoring Statistics 2014
Asia Factoring Statistics
-
050
100
150
200
250
USA Brazil Mexico Chile Colombia Other Total Americas
in e
uro
bill
ion
s
2010
2011
2012
2013
2014
YOY 16,6% 0,7% -9,2% -2,5% 27,0% 19,8% 7,9%
5-Y CAGR
2,0% 1,4% 15,2% 11,4% 34,0% 32,6% 7,8%
* Data from FCI World Factoring Statistics 2014
Americas Factoring Statistics
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Biggest Gainers in 2014
0
2
4
6
8
10
Costa Rica Singapore Israel Lithuania Malta Morocco Argentina United ArabEmirates
Mauritius Turkey
in e
uro
bill
ion
s
2013
2014
1932% 280% 183% 101% 66% 52% 52% 43% 42% 29%0%
20%
40%
60%
80%
100%
+ % Change
-
2014 FCI+ Combined Two-Factor Volume
Increased 15% over 2013 (in Millions Euros)
46.000
48.000
50.000
52.000
54.000
56.000
58.000
60.000
2013 2014
FCI 2-Factor
FCI 2-Factor
Chinas export volume grew by 8% but import increased by 94%
Singapores export grew by 150%
Taiwans EF was flat but IF business doubled
HKs EF volume down 27% but IF business grew by 56%
USAs IF business down 7% but EF volume up 1570%
YTD September 2015 volume up 13%
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EXPORT 2014 Countries
CODE NAME NET AMOUNT
CN CHINA 10,901.50
TR TURKEY 3,588.79
TW TAIWAN 2,419.70
SG SINGAPORE 2,185.32
HK HONG KONG 1,424.15
US UNITED STATES 1,359.25
ES SPAIN 1,227.58
GR GREECE 959.99
IT ITALY 959.16
KR KOREA REPUBLIC 667.86
89% 25,693.30
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IMPORT 2014 Countries
CODE NAME NET AMOUNT
US UNITED STATES 9,155.11
CN CHINA 3,796.75
FR FRANCE 3,053.73
DE GERMANY 2,821.88
TW TAIWAN 2,606.24
IT ITALY 1,393.77
HK HONG KONG 1,080.15
GB UNITED KINGDOM 781.36
ES SPAIN 742.37
SG SINGAPORE 616.50
90% 26,047.87
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FCI+: Late Payments By Importers
Year # Days
2007 17.5
2008 19.1
2009 19.5
2010 17.0
2011 17.8
2012 17.9
2013 19.4
2014 19.2
17.5
19.1
19.5
17.0
17.8 17.9
19.419,2
2007 2008 2009 2010 2011 2012 2013 2014
( 2013: 485,000 payments )
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Credit Approval Rate Top FCI+ Import
Countries 2014
Country %
U.S.A 56%
France 40%
Germany 43%
China 79%
Taiwan 47%
Italy 38%
U.K. 46%
56%
40%
43%
79%
11%
38%
46%
FCI average: 40%
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Disputes (as % of total number of invoices)
Year % of # invoices
2007 9.0% of 580,000
2008 9.4% of 565,000
2009 9.3% of 447,000
2010 7.7% of 522,000
2011 7.5% of 545,000
2012 8.0% of 531,000
2013 7.5% of 556,000
2014 6.4% of 592,657 2007 2008 2009 2010 2011 2012 2013 2014
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Payments Under Approval (PUA)
(in millions and as % of turnover)
Year Amount %
2007 12.0 0.12%
2008 16.2 0.13%
2009 31.3 0.32%
2010 6.1 0.04%
2011 5.5 0.03%
2012 12.1 0.05%
2013 8.9 0.03%
2014 3.9 0.01%
2007 2008 2009 2010 2011 2012 2013 2014
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Building bridges in new markets
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FCI+ PARTNERSHIPS: DEVELOPMENT BANKS, ICC, AND THE WTO
-
FCI+ Promotion Conference
Jakarta, Indonesia March2015
-
FCI Promotion Conference:
Dhaka, Bangladesh April 2015
-
FCI+ Promotion Conference
Marrakesh, Morocco May 2015
-
FCI Promotion Conference
Mexico City December 2015
-
Future Promotion Conferences
-
Creation of the Regional Chapters
Latin AmericaBuenos Aires
AsiaSingapore
EMEABrussels
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FCI+ Education
-
FCI+ Education Programme Achievements
Between 2008 and 2015
4136 students enrolled and awarded in FCI courses
1067 delegates attended 27 FCI seminars
From 83 countries worldwide
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FCI+ Education Programme
Three Main Pillars
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FCI+ Foundation Course for
Non-members
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Who is it for? For new entrants to the industry For staff at all levels within with less than 12 months factoring experience
Assessment An on-line multiple choice examination The successful student will receive the FCI Bronze Certificate
Study Material The content has been created by the FCI Education Committee, industry professionals with
in depth knowledge and experience
Study Time and Examination The Course is designed to be completed within a period of 3 months
Language The Course is available in English only
Assistance During the Course FCI Education Director is available for assistance
FCI+ Foundation Course for
Non-members
-
FCI+ Education Catalogue
-
In-house, tailor-made training programmespecific to your companys learning
needs
Duration 2 to 4 days
FCI+ Education Programme for
New Members - Tailor-made Training
Mentoring
Webinar Getting started in FCI
FCI+ Quick Start Guide
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Union Between FCI & IFG
-
ss
1st
FCI Annual
Meeting,
Stockholm,
Sweden June 1968
1st
IFG Annual
Meeting, Zurich,
Switzerland
September 1964
-
FCI + IFG Union Signing Ceremony
Brussels 26 October 2015
-
Promotion: How to learn more about FCI
-
FCI+ Website: www.fci.nl
-
FCI+ Annual Review Overview of the factoring
industry
Introduction to FCI
Articles on Supply Chain Finance
Global statistics on factoring
List of FCI Members in 90 Countries
-
FCI Horizons: News for the Open Account
Receivables Finance Industry
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THANK YOU
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By Chairperson, Africa Chapter IFG, Mrs. Kanayo Awani and
Director Trade Finance and Branches (AFREXIMBANK)
Presentation at Factoring Promotion Conference, Dar Es Salaam, Tanzania,
1st February 2016.
The Role of Afreximbank in the Development of Factoring in Africa
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1. Afreximbank An Introduction
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Afreximbank is a Pan-African Multilateral Financial Institution
created in 1993 under the auspices of AfDB to promote and finance:
(i) Intra-African trade; and
(ii) Extra African trade
Its broad instruments of intervention are:
(i) Credit (Trade and Project Financing);
(ii) Risk Bearing (Guarantees and Credit Insurance); and
(iii) Trade Information and Advisory Services
The Bank is yet to introduce credit insurance services
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Page 53
A Pan-African Presence
Member country with office
Member country
Head office
38 Participating States across
Africa
Cairo
Abidjan
Harar
e
Nairobi
Abuja
Afreximbank has an authorized sharecapital of US$5 billion. Shareholdersinclude African Governments,financial institutions and privateinvestors and non-African investors.There are 38 member countries spreadacross Africa.
Credit Ratings
Afreximbank carries two InvestmentGrade Credit Ratings, namely
BBB by Fitch and
Baa2 by Moodys
Angola Guinea Republic of
Congo
Benin Ivory Coast Rwanda
Botswana Kenya Senegal
Burkina Faso Lesotho Seychelles
Cameroon Liberia Sierra Leone
Cape Verde Malawi Sudan
Chad Mali Tanzania
DRC Mauritania Tunisia
Egypt Mauritius Uganda
Ethiopia Mozambique Zambia
Gabon Namibia Zimbabwe
Gambia Niger Guinea Bissau
Ghana Nigeria
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2 . Factoring in Afreximbank
-
Afreximbank is promoting Factoring as an alternative tradefinance instrument to enable African businesses, tradecompetitively.
It is also to support the participation of Small and MediumEnterprises (SMEs) as indirect exporters in supply chains.
Afreximbank is introducing Factoring to African banks andnon-bank financial institutions, and nurturing them in theprocess.
-
Afreximbank joined the International Factors Group(IFG) in September 2007 as a Shareholder , and isplaying an active role in the IFG, now FCI-IFGUnion,
Afreximbank is a strong supporter and facilitator ofactivities of the Africa Chapter of the FCI-IFG Union.
To attain this goal,
-
The role of Afreximbank in the development ofFactoring in Africa :
1. Provision of Lines of Credit for Factors,
2. Educational Activities,
3. Fostering the creation of facilitative infrastructure.
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1. Provision of Line of Credit to Factors
Afreximbank is offering Lines of credit to Factors, providing liquidity to
them and payment risk protection.
To date, Afreximbank has approved an aggregate amount of US$ 73 Million
for Factors located in:
(i) Mauritania (US$ 23 Million)
(ii) Senegal (US$ 35 Million)
(iii) Mauritius (US$ 5 Million)
(iv) South Africa (US$10 Million)
US$48 Million has been disbursed.
Factoring lines totalling US79 Million for institutions in Burkina Faso,
Kenya, Egypt, Botswana, Cameroon, Mauritius, South Africa and
Zimbabwe are currently being assessed .
-
2. Educational activities/ Raising Awareness
1. Raising Awareness / Education
To deal with the lack or very limited knowledge of the product across
the continent:
The Bank has been facilitating the sharing of experiences
between local members in Africa and engaging in public
relations activities designed to raise local awareness of the
benefits of factoring
The Bank has also been implementing educational activities to
develop skills in Factoring and build capacities across the
continent.
-
(60)
2. Education Activities/ Raising of Awareness.
(60)
In December 2010, the Bank
hosted a workshop in Cairo, Egypt
on the theme: factoring
operations for Beginners.
1 In December 2011, Afreximbank
hosted a workshop in Accra,
Ghana on the theme: Achieving
Success Through Factoring
2
Afreximbank helda Factoring workshop inDouala, Cameroon onNovember 22, 2013 on thetheme: Factoring as anAlternative Trade FinanceInstrument in a competitiveWorld.
3
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2. Education Activities/ Raising of Awareness (Contd)
A Factoring workshop targeting Regulators & Law Makers was held inLagos Nigeria on June 13, 2014 on the theme: Promotion and developmentof factoring in Africa: Towards a Facilitative Legal and RegulatoryEnvironment. The Event attracted more than 60 law makers, members ofparliament, Officials from Central Banks, and others regulators from Westand Central Africa .Mr David B. Tatge , a member of Epstein Becker Green Law Firm led theWorkshop. Erik Timmermans the then Secretary General of IFG and PeterBrinsley supported.
4
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2. Education Activities/ Raising of Awareness (Contd)
A Factoring workshop targeting Regulators & Law Makers washeld in Lusaka Zambia on November 7, 2014 on the theme:Promotion and development of factoring in Africa: Towards aFacilitative Legal and Regulatory Environment. The Eventattracted 54 law makers, members of parliament, Officials fromCentral Banks, and other regulators from North, East andSouthern AfricaMr. Nick Hough founder of, Corporate Cash flow Solutions(CCS) South Africa led the Workshop. Mr Peter Brinsleysupported. The then Governor of the Bank of Zambia, Dr. M.Gondwe, opened the seminar.
5
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2. Education Activities/ Raising of Awareness (Contd)
IFG in collaboration with the Egyptian FinancialServices Institute (FSI), the Egyptian FactoringAssociation (EFA) and Afreximbank organized theFirst Symposium and Academy on Factoring inAfrica in Cairo, on 11-12 March 2015. 70 participantsfrom Egypt, Botswana, Kenya, Zambia, Zimbabwe,Nigeria, Morocco, and Mauritius attended.
6
-
2. Education Activities/ Raising of Awareness(Contd)
On November 4, 2014 Afreximbank launched a
new Publication in Lusaka, Zambia.
The publication, Contemporary Issues in African
Trade and Trade Finance (CIAT), is part of the
Banks effort to continue to provide useful
platforms for Africans and non-Africans to
publish articles relevant to the trade and socio-
economic development of Africa.
The maiden issue of the CIAT was dedicated to
Factoring to underpin its emerging importance in
an African Trade environment that is changing
and creating opportunities for participation of
SMEs in the Continents and global supply
chains.
7
-
2. Education Activities/ Raising of Awareness (Contd)
CIAT Volume 1, Number 1 carried the following 3 papers:
1- From the periphery to Centre: Africa as the Growth
Market for Factoring . It highlights the major developmentsin Factoring in Africa, the challenges and the prospects. Thispaper was authored by Dr Benedict Oramah, Executive VicePresident at Afreximbank.
2- Evolution of Factoring in Egypt and implications forFactoring Development in Africa This paper highlights theevolution of Factoring in Egypt and draws implications forAfrica. This paper was co-authored by Dr Benedict Oramahand Mr Richman Dzene Manager, Research and KnowledgeManagement at Afreximbank.
3- An insight into recent legal and regulatory reforms ofFactoring in Africa discusses recent legal reforms in Africa inrelation to Factoring. Mr Enga Kameni the author, is Managerat the Legal department of Afreximbank.
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6 participants from Africa attended the IFG Academy Week & COFIT in Malta in June 2015.
FCI and the Africa Chapter are currently developing a customized COFIT programme for Africa.
2. Education Activities/ Raising of Awareness (Contd)
(E-Foundation Course)
Afreximbank has purchased 30 IFG E-Learning Foundation Course
slots dedicated to Africa Chapter members.
27 staff from 9 countries have enrolled and 11 have completed while 16
are still going through the course.
(IFG Academy week & COFIT )
-
(67)
3. Facilitating Infrastructure (Technical Assistance)
To alleviate the cost of setting up Factoring business platforms and
challenges around the lack of expertise in back-office and receivables
management:
The Bank is working on a co-Branded Factoring Development
product to be called AfriFactor .
AfriFactor will aim at providing advisory services for establishing
Factoring business, IT and Operations platforms to African
Financial Institutions desiring to commence or enhance their
Factoring businesses.
-
(68)
3. Facilitating Infrastructure (Legal environment)
Improving weak legal environment compounded by the high cost of
perfecting legal documents:
AFREXIMBANK has engaged two firms for the drafting of a
model Factoring Law that we hope to introduce in countries
where we are beginning to see Factors emerge. The first draft is
expected by end of Q1 2016.
The Bank will be organizing workshops, trainings and advocacy
campaigns targeted at Law Makers & Regulators to educate and
encourage interest in Factoring towards facilitative legal and
regulatory environments in the respective countries.
-
3. Partnerships.
-
1. Collaboration with AfDB
2. Collaboration with FCI-IFG Union
Partnerships.
-
1. Collaboration with the African Development Bank (AfDB)
Afreximbank is working with the African Development Bank
Thematic Fund for Private Sector Assistance (FAPA) to support
Factoring companies in Africa
Grants under FAPA are used to promote innovative programs
that specifically support small - and micro - scale enterprises,
including the provision of seed money for start-ups, business
incubators, etc.
AfDB has pre-approved a grant that will be applied towards:
Technical capacity building ;
Drafting of a model law;
Advocacy (Training, Workshop, Conferences, etc.)
Final approvals are awaited.
-
The Africa Chapter has been working with the global associations to
enable African banks and Factors seize the opportunities Factoring offers
while at the same time mitigating the difficulties in the market.
This collaboration will continue with the Union.
The integration of IFGs activities into FCI in 2016 presents opportunities
for Africa Chapter members and their clients.
2. Collaboration with FCI-IFG Union
-
The Africa Chapter leverages on the global associations to :
Connect Service providers with members and align with like-minded
organisations to facilitate broader industry reach. They identify factors
that will be open to entering into Joint Venture Arrangements with Africa
Chapter Members to accelerate start-up operations
Educate and provide training support in order to set standards and best
practice in the industry.
Influence and Lobby on behalf of the industry promote and defend
the industry working closely with regulators and governments worldwide.
For instance IFG and Afreximbank embarked on a mission to Senegal and
Kenya in 2015 to engage key government officials and regulators.
2. Collaboration with FCI-IFG Union (contd)
-
2. Collaboration with FCI-IFG Union (contd)
Membership fees: The Africa Chapter has negotiated and obtained a
substantial reduction of and concessions on membership fees for their
members and a smooth integration in the Union.
E-Learning Foundation Course: Afreximbank has purchased 30 IFG E-
Learning Foundation Course slots dedicated to Africa Chapter
members.
-
The Bank and the Africa Chapter participate in membership mobilization. 21 Members belong to the Chapter as at date.
2. Collaboration with FCI-IFG Union (contd)
Cim Finance Ltd
Commercial Factoring Ltd
Maroc Factoring
Hedgeworth Factors Ltd
Global Interface Trust
Locafrique S.A
Tunisie Factoring SA
Micro Finance Zambia Ltd
FBC Bank Ltd
Harare Receivables Exchange
Nigerian Export-Import bank (NEXIM)
Gulf Bank
Cofina (CTI)
AFREXIMBANK
Cairo Factors
Egypt Factors
Coface Services
Blend Financials
Mareco Ltd
Umati Capital Ltd
E-nnovative Capital
-
2. Collaboration with FCI-IFG Union (contd)
-
These are: Tamweel Mortgage Finance
QNB Al-Ahli Factoring Company
Ecobank Kenya Ltd
Standard Chartered Bank Kenya Ltd
MCB Factors Ltd
Attijari Factoring
Banque Marocaine pour le Commerce et l'Industrie
Nedbank Ltd
Sasfin Bank Ltd
Union de Factoring (Unifactor)
2. Collaboration with FCI-IFG Union (contd)
https://fci.nl/en/members/index
The Merger brought 11 additional members bringing the total African Chapter members to 32 as at date.
-
4. Conclusions
-
4. Conclusions
What we would like you to take away is the impetus The Africa
Chapter and Afreximbank are adding through , raising awareness,
public relations, providing credit facilities, lobbying, various
arrangements for technical assistance, etcetera.
We urge you all especially Factoring companies to join FCI-IFG
Union because of the importance of joining forces in achieving
common results. The current wave of enthusiasm in factoring offers
strong momentum to develop the product and the Africa Chapter,
Afreximbank and the Union are keen to provide support.
-
THANK YOU FOR YOUR ATTENTION
Q & A
-
A factor is a specialized financial company, either independent or a
subsidiary/division of a bank that provides certain services to a business by
leveraging their clients accounts receivable.
A factor provides four basic services:
-
Order placed with supplier 30% deposit
Goods shipped from China 70%
balance
Arrive in Dhaka port and stocked
Stock sold invoice raised
CIL repaid
Funds in Use
Lead time Transit time Stocking period Sales period
19575 135450
Pre shipment financePre shipment loan Receivable Finance
Post shipment finance Clean Import Loan
-
Buyer
Performance(i.e., sale of property
or services rendered)
Obligation
To Pay Money
Seller
Collect/Enforce
Modify
Sell
Pledge
Credit Inability to Pay
Contract Defenses &
Disputes
Setoff Mutual Debits/
Credits
Rights of Creditor Risks of Creditor
-
Retailer places an order with
supplier.
Factor collects funds from retailer.
Factor pays supplier difference.
Supplier invoices retailer and assigns
invoice to Factor and pays supplier
with reserve
Supplier ships products to
retailer.
Factor evaluates credit worthiness
of retailers.
Factor approvesthe order.
1 2 3 4 5
Suppliers are referred to as clients Retailers/debtors are referred to as customers
Serving Suppliers that Sell to Wholesalers & Retailers Globally
-
90
Apparel
Textiles
Furniture / home furnishings
Carpet
Footwear
Hardware supplies
Consumer electronics
Computer hardware
Consumer goods
Sporting goods
Toys
Housewares
Service industries
-
A Product / Service
Complete at the point of invoice
Which can be paid, even if the seller is no
longer trading
Receivables, which can be valued
Receivables, where the factor is entitled
to receive payment
-
Ban on Assignment
Charges over A/RAssignable
Sale or return-Consignment
Evidence of installation
Progress payment
Collectable
-
What is likelihood of the prospect failing in the near future?
What should you look for? / Key Questions
a) The Company
b) The Management
c) Financial Situation
d) Products or Services
e) What is factoring finance needed for?
-
Competence IntegrityCredit-
worthiness
-
Legal and Compliance
Financial Crime (Anti-Money Laundering / terrorist financing)
Operations
Fraud
Seller Insolvency
Buyer insolvency
Political/Country/Transfer
Regulatory
Reputation
Data Protection
-
Client Assessment &Technical Input
Approval of credit limit
(by Risk Management)
Renewal / Cancellation
(by Risk Management)
-
The Reality of Fraud in Business
A study conducted by the Association of Certified Fraud Examiners
(ACFE) in 2014 found that the typical organization loses 5% of its annual revenue to fraud.
Fraud is now the leading illegal money-spinner in the world, exceeding drug running AIG SA, (Moneyweb)
-
Improve cash flow
Eliminate credit losses
Reduce operating expenses
Expand working capital financing through advances
Improve management information through online reports, such as:
- Customer payments - Credit Approvals- Accounts Receivable Aging - Customer deductions/disputes
What Are the Benefits to the Client?
Direct monitoring or the receivables portfolio by the Factor/Bank
Greater collateral control
Assignment of proceeds controlled by Factor/Bank
Wire transfer of good funds to the Factor/Bank
What Are the Benefits to the Factor?
-
THANK YOU
-
(Mio Euro)
Global Factoring Volume 1992 2014
Domestic International
-
Factoring Compared to Other Financial Products
(Mio EUR) 2008 2009 2010 2011 2012 CAGR
International Factoring Volume 176.168 165.459 245.370 264.108 354.843 19.1%
Global Factoring Volume 1.325.111 1.283.559 1.645.524 2.015.007 2.134.247 12.7%
Credit Insurance 987.075 945.324 1.034.091 1.275.602 1.377.650 8.7%
LC Transactions 2.735.092 2.635.125 2.700.700 2.806.965 2.863.104 1.2%
Total Global Exportation 11.597.377 8.705.400 11.430.175 14.108.509 14.461.222 5.6%
-
Turkey is 2. in the World"
0
2.000
4.000
6.000
8.000
10.000
12.000
China Turkey Taiwan Singapore HongKong
USA Spain Italy Greece KoreaRep.
(Mio EUR)
Country Ranking of Export Factoring
2013 2014
Market Share 38% 12% 8% 8% 5% 5% 4% 3% 3% 2%
Growth 7% 6% -1% 151% -27% 754% 13% 20% -13% 293%
-
Penetration of factoring per country
3,6%
7,9%
11,3%
15,3%
9,6% 10,2% 9,6%
5,9% 6,1%
4,5%
0,7%
GDP 2014 (USD Mio)
77.365 22.630 530 2.945 1.407 2.148 2.847 3.860 806 10.380 17.419
World Europe Taiwan UK Spain Italy France Germany Turkey China USA
-
Increase in factoring volumes due to . . .
Global economic turmoil and increasing level of commercial risks
Corporate, banking and sovereign bankruptcy risks due to massive loss of assets
Late payment and default risks
Need for working capital
High level of funding costs and difficulties in obtaining financial tools
High level of operational expenses for A/R management
" Risk averse approach of continents, countries and
companies "
-
Factoring in Turkey
-
1988
First Factoring
Transaction
1990
First Factoring
Company Established
1994
First Factoring
Legislation
1995
Factoring Association
Established
2006
BRSA
Administration
2010
BRSA Licences
Granted
2012
Factoring, Leasing,
Consumer Finansing
Law Approved
2013
Financial Instutions
Association Established
The history of Turkish factoring industry
-
Factoring in Turkey 2015
76 Companies 366 Branches
5.000 Personnels
-
Factoring in Turkey 2015
~ 100,000Clients
~ 500,000Debtors
~ USD 10 BillionsFinancing
Amount
-
Turkey is growing faster than the world ...
(Millio
n U
SD
)
-
(Mio USD)
Growth 1% 8% 2%
Share 18% 82% 100%
2013 2014
Total factoring volume is 50 billion USD in 2014
-
Factoring is growing in Turkey rapidly...
The Turkish Factoring Industry has been regulated and supervised by the
since 2006.
Factoring Companies 77
Factors doing Intl Factoring
18
Members of AFI 121
Total Volume (2013) USD 49 billion
Average growth rate (90-2013)
38%
Consumer
Finance
8%
Financial
Leasing
10%
Factoring
81%
-
Factoring products in Turkey
Full factoring Recourse factoring Non-recourse factoring Invoice discounting (undisclosed factoring) Direct international factoring Two-Factor international factoring Purchase order management Supply Chain Finance (mostly in domestic market for SMEs)
Non-Recourse Domestic Factoring (with or without credit insurance protection) Import Factoring (with or without credit insurance coverage) New Innovative Products like the Project with the Turkish Eximbank Worldwide coverage (Access to 238 countries) Supply Chain Finance Asset Based Lending
Challenges for growing ...
-
Financial Leasing, Factoring and Financing
Companies Law
Important Points & Conditions of the Law
Factoring companies are categorised as Financial Institutions
Factoring has been defined with all aspects of its services
Principles of corporate governance have been redefined
Minimum paid-in capital should be increased from TRY 7.5 million to TRY 20 million
Association of Financial Institutions (AFI) has been established combining allleasing, factoring and financing companies
AFI is assigned to establish a Receivables Recording Center
-
Data centers for banks & financial institutions
Risk Center
Under the management of the Banks Association
Data Center of Banking & non-Banking client information
Credit information, payment performance & use of credit history are available
+
Receivable Recording Center
Under the management of the Association of Financial Institutions
Data center of the receivables including e-invoices assigned to factoring companies and banks
Payment information (postdated cheques)
=
Critical information for risk management and credit protection
Access to main market information
Intelligence shared among the financial institutions and the banking system
Early warning system
-
Communication for the Achievement
Industry Goal:To positively affect Turkeys economy and export volume by providing guarantee and collectionservices for open account sales as well as providing working capital mainly for SMEs.
As the representative of the Industry, the Turkish Factoring Association
Goal is:To manage the relationship between its members and govermental and non-govermentalorganizations as well as public in order to accelerate the industry development and to contribute the
legal framework within the scope of international definitions.
To achieve those goals;
Effective COMMUNICATION with all parties is the key to SUCCESS !
What is factoring? Why factoring? Which factoring services? Who are factoring companies?
-
Importance of Connecting with all Parties
-
Connecting with Public through Media
-
Publicity of Factoring with Conferences
National Factoring Conference ;
Presentation of Turkish factoring industry to the real sector and media
Discussing industry development with the stakeholders
Deputy Prime Minister Economy Ministry of Finance Turkish Treasury BRSA Corporates Members Media
-
Cooperation with Public Authorities
Legal Symposium with cooperation of Turkey Supreme Court
Legal framework of factoring New Code of Commerce New Code of Obligations Draft Factoring Law
Panel with BRSA and Ministry of Finance
Benefits of factoring for the Turkisheconomy
Factoring: financial solution for trade
-
Cooperation with Public Authorities
Workshop with Financial Crimes Investigation Board(MASAK)
General Principles Trainee of the TFAs MASAK Committe members
Workshop with BRSA
Regulation Internal Audit
Reporting
Workshop with Turk Eximbank
New Products for Exporters
-
Cooperation with Public - NGov Orgs
Turkish Exporters Assembly (TIM) is the roof organization of around
55,000 export firms. It acts to insure the coordination between public and
private sector organizations, exporters and decision-makers.
Organizing Factoring Seminars for Exporters Leading the cooperation between Turkish Eximbank and Factoring Association Having support of the Central Bank and GOs
The Turkish Foundation for Small and Medium Business (TOSYOV)
Small and Medium Enterprises Development Organization
(KOSGEB)
Chamber of Commerce
-
International Cooperation...
E-Factoring Workshop of EBRD
in Istanbul
Cooperation with other National FAs
Factoring Conferences in Taiwan
First International Factoring Conference, Istanbul with cooperation of
EBRD and FCI supported by TFA members and BCR Publishing
-
Connecting with Credit Information Agencies
Two structures where the credit information and use of credit
history are available;
Risk Center by the Banks Association of Turkey (BAT) All banks and selected financial institutions by BRSA are members of
this Center.
Credit Bureau Banks and financial institutions could be members of the Bureau
Both are under the control of BRSA
-
Importance of Education
Factoring Certificate Program with
cooperation of Bilgi University
Academic Instructors Professionals from the Industry 3.5 months Training Exams and Certificate
Various Education Programs;
Legal Issues Legislation Risk Assessment International Trade Financial Products Financial Maths Accounting etc.
-
To move on to the next level ...
One voice in front of executive, legislative and judicial authorities Ad hence the rules and code of ethics Synergy with other finance sectors Cooperation with all stakeholders Centralization of the database Global know-how transfer Information sharing IT Solutions Education Support of the government is necessary
"To take the Receivable Finance to the next level"
-
Thank You
-
Moderator
-
An Organisation for legal integration that fosters economic development
-
o
o
-
o
o
o
o
-
Moderator
-
EXPORTER
IMPORTER
IMPORTER
IMPORTER
-
6. Payment under Approval
(90 days from the due date)
EXPORTER
IMPORT
FACTOR
IMPORTER
EXPORT
FACTOR
1. Exporter ships goods 2. M
akes P
aym
ent
3. Transfers Payment
4. Liq
uid
ate
s f
undin
g
Fa
cto
rin
g A
gre
em
en
t
Inter Factor Agreement
5. P
rotra
cte
d D
efa
ult o
r
insolv
ency
Notification of Assignment
Deal Flow
Documentation Flow
PUA Flow
LEGEND
TWO FACTOR SYSTEM
-
Govern FCI structure
Rules of FCI membershipFCI Constitution
Agreement executed between FCI members
In accordance with FCI legal framework Inter Factor Agreement (IFA)
Regulates various aspects of International Factoring
Defines roles and responsibilities of Import and Export Factor
General Rules for International Factoring (GRIF)
Implementation of edifactoring.com Communication System in April 2002 made it necessary to introduce basic rules for EDI environment
These rules have global applicabilityEdifactoring.com rules
Procedures to be followed in the case two correspondents resort to arbitrationFCI Rules of Arbitration
-
LIMITED FOOTPRINT
Export factors may not have wide international presence limiting understanding of buyer
markets
LEGAL ISSUES
Export Factor will face difficulties in collecting payments from buyers e.g. lack of
understanding of local assignment rules
COLLECTION ISSUE
Export factor will face time zone and language issues is coordinating with the buyers
COOPERATION BETWEEN FACTORS
Export Factor must be confident of Import Factors dealing with buyers and Import Factor is dependant on Export Factor for
business
CREDIT STANDING OF IMPORT FACTOR
Export Factor needs to perform due diligence and assess financial standing of
Import Factor
ANIT MONEY LAUNDERING RISK
AML risks are high in cross border trade and close control is required in factoring to prevent
the same
-
One export factoring agreement covers credit risk of buyers in several countries
Communication is in local language
Collections and sales ledgering are handled by factors while seller focuses on core activities
Does need to be familiar with trade or law of buyer country
Obtains credit information on buyer
Seller
Communication is in local language
Pay invoices locally in the most efficient and cheapest way
Can trade on Open Account terms and avoid cost of letter of creditBuyer
Offer seller export factoring without setting up operation in a large number of countries
Import Factor takes credit risk on the buyer
Import Factor performs collections
Import Factor takes legal action on buyers if required
Export Factor
Import Factor is able to generate business through Correspondent Factoring
Import Factor can increase portfolio of buyersImport Factor
-
Moderator
-
Factoring over 10 years
Developed documentation and process
Borrowed from the US, UK and India and adopted to Kenyan law and business environment
Grew to have the largest book and transact large tickets
Brief History
-
New concept- most of the market didnt understand -:- purchasing of documents, - no need for collateral, - no interest in banking history
A lot of one on one training on customers- understanding the process- understanding the documents and transfer of ownership- understanding the terms- understanding their ongoing obligations Clients finance departments - were knowledgeable of the concept as finance experts but with no
hands on experience- concerned about system changes and interruptions
The Market
-
Accepting of the concept
Happy with ease and speed of transactions
Concerned about cost implication on them
Moved from traditional banking products to depend predominantly on factoring
The Customers
-
Developed documentation in conjunction with the authorities, legal experts and banks
Improved documentation to adapt to client need and stay true to True Factoring
Operated strictly within the company act as opposed to the banking act
Legal Structure
-
Customers reactions
Happy to get quick cash Happy no collateral or banking history requirements Quick to adopt to documentation and structure
Client reactions Appreciated less stress from supplier needing early payments Noticed improved delivery and performance of suppliers Happy to transact with one non pushy supplier for multiple receivables
Lessons Learnt
-
ADAPTATION TO THE MARKET IS KEY
Key Focus to Success
-
CONTENTS
1. About E-nnovative Capital (E-Cap)
2. About Prime Revenue
3. The Buyer-Supplier Conundrum
4. OpenSci Suite solutions
5. Case Study - ArcelorMittal South Africa
Background
The Approach
Results
Lessons Learnt
-
Risk Advisory
Risk Training
Risk Technology
Risk Placement Services
Supply Chain Financing
Working Capital Optimization
Receivables Financing
Marketplace Lending
Financial Technology
Corporate Finance
Project Finance
Working Capital
Green Finance
SME Support
Risk ManagementSupply Chain Finance
+Financial Advisory
Centerprise Group
-
Transactions in 50+ countries
Available in 20 currencies
No limitations in terms of jurisdictions, currencies, suppliers,
invoices
CUSTOMERS INVOICE VALUE SOLD BY SUPPLIERS PER DAY
Europe 2012 2012
E-caps PARTNERSHIP WITH PRIMEREVENUE
167
Atlanta (HQ)
Paris
London
Frankfurt
Prague
Melbourne
Hong Kong
Lebanon
Monterrey
Cape Town
Nairobi
Operation CentersOffices Deployment Partners
167
-
PrimeRevenues Global Global Footprint
-
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
SME SUPPLIER
Non Bank
Funder
1,2,3...
Bank
1,2,3...
LARGE BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
SME BUYER
LARGE SUPPLIER
Goods and Services
Receivable
Sale
of
Receiv
abl
es Cash
Payable
s
Paym
ent
Ob
ligatio
n
Goods and
Services
Paym
ent
Ob
ligatio
n
Only good names pre-
qualified by Funder
SMEs chosen based on priority Sectors as agreed with Funders and will differ from country to
country based on their economic
development strategy
-
OpenSci
Reverse
Factoring
(Payables
Financing)
SCiMap
SCiEnable
SCiSupplier
Receivables
FinancingSCiCustomer
The only Buyer-centric solution that creates buyer
buy-in
Win-Win-Win for buyers, Suppliers, Funders
-
Reverse Factoring Solution
Either:
i) Supplier logs in and views approved invoices via web and selects invoices
to be financed OR
ii) Supplier gives standing instructions to
Auto-trade approved invoices at the
agreed discount rate
Buyer electronically transmits approved supplier invoices to the platform.
At invoice maturity date, Buyer pays Funderfor funded invoices and supplier for balance
2
5
3
Funder accept Supplier offer and pays them next day
4
Multiple Funders
1
R100R100Kes50,000
Kes 47,000
Commercial agreement reached with Supplierse.g. Supplier agrees to additional 2% discount for prompt settlement
Supplier
Buyer
Kes 47,000
-
4 Customer pays seller
1 Seller uploads invoice
data to SciCustomer and
offers to sell the
invoices to participating
funder(s). This is a true
sales transaction/non-
recourse.
2 Funder views offers on
SciCustomer, and purchases
invoices.
5
Seller pays
maturing
invoices to the
funder, and
reconciles the
transaction
3 Funder processes
invoices purchased
and pays the seller.
Customer
Features
Undisclosed Non-recourse Cash with no new debt Reduced risk
Overview - Undisclosed NRRF
-
1 Seller uploads invoice
data to SciCustomer and
offers to sell the
invoices to participating
funder(s). This is a true
sales transactions.
2 Funder views offers
on
SciCustomer, and
purchases invoices.
5
Funder
repays the
balance of
the advance
amount
3 Funder processes
invoices purchased
and pays the seller.
Customer
4
Customer
pays Funder
Overview - Disclosed NRRF
Features
Disclosed Non-recourse Cash with no new debt Reduced risk
-
Due to a slowing Chinese economy there is currently an oversupply of steel from many large Chinese steel manufacturers.
Over the last year excess production from Chinese steel Mills have found its way to markets around the world.
This has put massive downward pressure on steel prices, see graph.
-
Steel manufacturers around the world were suddenly under huge pressure as they lost market share to cheap Chinese imports.
Steel mills were suddenly running at sub-optimal levels as a result of reduced sales which has led to downscaling and financial losses.
-
This has not only been detrimental to steel manufacturers, but also to thousands of suppliers supplying goods and services to the steel manufacturers.
The whole steel supply chain was suddenly under pressure, as can be seen from the corresponding drop in demand for iron ore and other related commodities.
-
One of the largest Steel manufacturers in Africa, ArcelorMittal South Africa, approached Propell Supply chain finance to implement a supply chain finance solution. ArcelorMittal spends in excess of R30b on
more than 2,000 suppliers annuallyPropell is the Africa Partner for PrimeRevenue
and uses the latters award winning solution OpenSci.Propell approached Barclays Africa who
provided a R1b funding line to inject cash into an industry that desperately needed a cash flow injection.The goal was to inject much needed cash into
the steel sector at a very competitive funding rate.
-
A fully automated supply chain finance program was successfully implemented by ArcelorMittal and Propell Supply chain finance within 6 weeks.
Barclays Africas funding line gives suppliers the ability to : -
trade their invoices at a very competitive rate WHEN THEY NEED CASH (pegged on the AncelorMittal credit Risk)
receive a much needed cash injection on demand pool of liquidity
Cash flow without any new debt thereby improved balance sheet metrics.
Reduce financing costsMitigate against buyer insolvency risk
-
AncelorMittal, on the other hand gained: -Through access to a source of off-
balance sheet working capital line at no cost.
Conservation of working capital via extended payment terms
Reduced risk in the supply chain Reduced cost of goods sold via
negotiated terms
-
More than R600m of cash was injected into the steel sector in the first 6 month of the program.
ArecelorMittals largest suppliers were familiarized, trained and on-boarded by Propell in the first three months, with plans to expand the breadth and scope of the program further during 2016.
Currently, onwards of 40 of the largest suppliers are participating in the program with plans underway to onboard more.
-
Before the implementation of the supply chain finance program, some of ArecelorMittals suppliers were funding their working capital at interest rates in excess of 30% a year through other forms of credit like invoice discounting. For these suppliers, the supply chain
finance program reduced the funding rate by more than 20% p.a. In other words the program has not only injected much needed cash flow without any new debt, but also improved their profitability.In addition to that, all suppliers, large and
small, now have a mechanism to mitigate their credit risk by selling invoices to Barclays Africa on a non-recourse basis. This has helped companies save on expensive credit insurance premiums.
-
Buying companies should invite as many funders as possible to ensure they can cover their whole supply chain and diversify their funding exposure. In this case, only Barclays Africa was invited and the program was created to suite the Banks risk appetite for ArcelorMittal.
One-on-one conversations with suppliers are critical to ensure they understand the benefits of a new product like supply chain finance, the objectives of a program and the workings of the platform. In this case, the current suppliers using the platform are the ones who have been convinced of the benefits. The onboarding process is therefore slower than anticipated.
-
Difference between just having A PROGRAM and implementing A SUCCESSFUL SUPPLY CHAIN FINANCE PROGRAM
ANALYSIS, PROGRAM DESIGN
AND IMPLEMENTATION
SPECIALIZATION AND
TRAINING
ONBOARDINGTOOLS AND
SUPPORT
MULTI-FUNDER, MULTI-CCY PLATFORM
191
WOLD-CLASS, AWARD-WINNING
TECHNOLOGY
1st
50 Banks and funders29 of them exclusively
use
-
19
2
-
Ivan Mbowa
a)Responsible for client origination, capital raising, treasury management &
oversight of accounting and operations at Umati Capital
b)Worked with Citigroup for 8 years across a wide variety of countries
including Uganda, South Africa, Nigeria, Ghana and Kenya.
c)Education: BA Economics cum laude and BA International Relations cum
laude (Tufts University, USA)
Munyutu Waigi
a)Responsible for technology & general product development at Umati Capital
b)In conjunction with Swiss digital media giant Ringier, co-founded Kenyas well-known Internet company, Rupu, which was acknowledged as one of
Africas top tech startups by Forbes Africa, 2012. c)Education: BSc Information Systems, Honours (Brunel University, UK)
Umati Capital
Founding team
19
-
1Insufficient and expensive credit across the agricultural
value chain caused by traditional methods of credit
underwriting which rely on collateral, guarantees and
historical bank account activities.
Access to credit
The problem
Innovative use of technology
The solutionImplementing data-driven lending supported by
proprietary applications used by traders, cooperatives
and processors linked to formal agricultural value
chains.
-
2F
Farmer
C
Trader or
Cooperative
P
Processor*
Supply Chain Financing Supply Chain Financing
R
Retailer
Invoice Discounting
Umati Capital
The Value Proposition
-
3The agriculture credit gap (US$) in Kenya alone represents a significant
addressable market in need of new solutions
Umati Capital
$1.8 Billion opportunity
US$16.6 billion
Agriculture contribution to GDP
US$2.5 billion
Annual contribution by formal value chains comprising of
traders, cooperatives & processors
US$1.8 billion
Immediate addressable market unserved by traditional
financiers
Why this gap exists
a)Agriculture is underserved by traditional financiers
b)Traditional financiers sight high costs of serving this
segment
c)Poor credit underwriting leads to high collateral
requests
-
4Umati Capital
$1.8 Billion value chain credit needs
Processor - A corporate
entity that adds value to raw
material procured from
traders or cooperatives
before selling on credit to
retailers
Credit need - Require
solution for delays in
receiving retailer payments
which cause delays in making
supplier payments
Trader - Individual
aggregators who buy raw
material from multiple
farmers in cash and supply
processors on credit
Credit need - Require faster
payments to pay their
suppliers upon collection
Cooperative - A group of
farmers who supply
processors under one legal
entity typically organised
as a limited liability
company
Credit need - Require
credit facilities for
members to preserve
loyalty and volumes
Break down of client segments within the US$1.8 billion agriculture financing
opportunity
F
Farmer
C P
Trader or
Cooperative
Processor
-
5Umati Capital
Solving the value chain problem
Technology
Web & mobile solutions capture supply chain
transaction data. This reduces fraud and increases
accuracy by replacing manual procurement systems
Data
Technology based transaction data provides basis for
credit underwriting. This allows for alternative
methods of determining creditworthiness for clients
who may lack sufficient collateral
Financing
Technology enabled servicing of credit needs
throughout the supply & distribution chain. Financing
is delivered to the end client without paper based
credit requests allowing for a 24hour turnaround
Payments
Virtual (web & mobile) banking solutions enable our
clients to gain faster access to their funds
Data
FinancingPayments
Technology
-
Umati Capital (UCAP)
Bridging the financing gap
Technology
A culmination of relevant
technology (web & mobile)
intimately links all three parties
together. The technology
allows Umati Capital to form a
clear and concise credit profile
of both supplier and buyer
6
-
Mobile apps are used by trader & cooperative field staff to issue
electronic receipts to farmers for accepted produce
8
Umati Capital
Value chain technology product
-
9Web apps are used by traders, cooperatives & processors to monitor collections,
analyse quality & prepare supplier payments
Umati Capital
Value chain technology product
-
13
Client name
Ten Senses Africa Limited
Client value chain
Agriculture - macadamia and cashew nut processing
Client type
Processor
Client description
Fairtrade & organic certified exporter of macadamia with 22 collection routes
responsible for procuring raw nuts from 60,000 farmers
Umati Capital value add
Automated entire supply chain and provided financing
Results
a)Implemented Umati Capital technology and financing solution in February of 2015
b)Increased procurement volume by 56% by April 2015
c)Increased efficiency of collections process by 90% by April 2015
Umati Capital - Case Study
90% Efficiency gains
-
May 2014
Umati Capital & Airtel Kenya
enter into strategic alliance
agreement
June 2014
Financial Sector
Deepening Trust
commences feasibility
study on Umati Capital August 2014
Umati Capital enters into
discussions with Kenyas largest breweries (EABL) to
finance its sorghum farmers
September 2014
Umati Capital closes first
institutional equity investor -
Accion International
October 2014
Umati Capital secures
second institutional debt
investor - Advance Global
Capital (UK)
November 2014
Umati Capital enters into
partnership to finance
TechnoServe linked farmers
across Kenya
December 2014
1. Umati Capital receives term sheet
from third institutional debt investor
- Afrexim Bank (Egypt)
2. Umati Capital enters into
partnership with Kenya Dairy
Farmers Federation
January 2015
1. Umati Capital begins pilot with Brookside Dairy
Limited covering North Rift & Western Kenya
2. Umati Capital and Diamond Trust Bank enter
into partnership to pilot a pre-paid MasterCard
Umati Capital
Traction thus far
July 2014
Umati Capital secures first
institutional debt investor - Apex
Peak (Singapore)
May 2015
IBM engages Umati Capital
to help build its technology
infrastructure
15
-
Moderator
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
Detect, value andbalance risks
Seller risk
Proceduralrisk
Debtorrisk
FACTORING AREAS OF BUSINESS RISKS
Prospect/Seller assessment
-
GENERAL RISKS FOR THE FACTOR
Creditworthiness of seller
Specific industry risks
Validity and enforceability of assignment (e.g. existing assignments to banks etc.)
Bad quality of sellers products or services
Dependency on big debtors
Overdues in receivables ledger of the prospect
Double invoicing
Multiple assignment
Order finance
Deferred issue of credit notes
-
RISK LADDER
-
WHAT IS FRAUD IN FACTORING?
Fraud in Factoring
Is an ever present risk for the receivables finance industry!
It is important to note, that in many cases, this risk could be identified before a factoring facility is offered to a prospective seller!
Key Vulnerability
Factors finance against
copies of invoices
shipping documents
electronic messages with details of invoices
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
CLIENT RISK SELLER SELECTION
Financial risk
Client risk
Portfolio risk Product risk
Prospect assessmentCheck the Viability of the Seller:
a)The Company
b)The Management
c)The Financial Situation
d)The Products or Services of the Seller
e)The Delivery process / procedures
f)The Debtor & Receivables portfolio
-
SELLER RISK KNOW YOUR CLIENT (KYC)
Identify personal details of your sellers shareholders
Existing charges over the assets of the prospective client
Insolvent companies with which the prospective client has previously been involved
Associated companies in which the prospective seller has an interest
Bankruptcy orders
Any special conditions to the creditors
Details of mortgage registered against the property in which the seller resides
Tax liabilities with the authorities
Bank information from other banks he might deal with
-
SELLER RISK CHECK PREMISES
Management of the seller you should meet personally
Managing director / Owner Accountant / Controller Tax accountant / Tax advisor Representative of cooperating bank / broker
Collect personal impressions of: Machinery, employees, real estate, vehicle fleet, etc.
Organisation and operating procedures Production plants, check production process Stock filled up or low Necessary investments Owned or leased operational assets Be able to compare with other sellers premises Check staff adequacy (production & admin)
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
FINANCIAL RISK DOCUMENTS
Audited Balance Sheets of last 3 years- equity ratio
- receivables, liabilities
- turnover, cost of goods
-cash-flow, profitability (EBIT, EBITDA)
Order situation and validation of planning figures/budget Current monthly statements/year-to-date analysis Receivables ledger of debtors/creditors incl. ageing balance Bank account statements Fulfillment of tax/social insurance liabilities Trade credit insurance documents Potential legal costs with respect to lawsuits
-
PRODUCT RISKS - CHARACTERISTICS Market development in sellers industry
Manufacturing process
Quality standards
Time frames
Country of origin (traders, re-sellers)
Quality characteristics to be accepted in buyers country
Raw materials
Level of dependency
Alternative sources
Dispute risk
Technological Issues
New vs. established technology
Level of automation
Investments
-
CONTRACTUAL RISK DOCUMENTS
Price adjustments
Provisional price on the (initial) invoice (sample)
Final price to be confirmed based on specific criteria
Quite common in Commodities trading
Bonus agreements
Discount based on purchased volumes
Participation in promotional campaigns
Usually by credit note issued either once per year (year end) or periodically (monthly/quarterly)
-
PROCEDURAL RISK - DOCUMENTATION
Statement of monthly credit notes / cancellations
Up to date contracts with debtors
Credit insurance contract & conditions / bad debts of last 2 years
Example of a commercial transaction: Order, delivery note, invoice, proof of delivery, advice of settlement, general terms/conditions
Purchase orders
Complete, detailed, clearly defined
Invoice issuance
According to local tax & legal regulations
Shipping documents
Ability to confirm with forwarder that goods are shipped
Quantitative data must match with invoices data.
Invoiced party address / delivery address
Goods may be shipped to a logistics center
Consignment stock
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
RISK MITIGATION => FIELD AUDITING
Purpose
Control & trust
Risk assessment
Personal contact
Additional (personal) information
React on changes
Local competence
Build up effective barriers
Why
Update the internal rating
assessment of unsecured receivables
actual eligibility of receivables
Adjust factoring agreement
conditions/ pricing/ funding
Anticipate crisis
prevent illegal practices
-
RISK MITIGATION FIELD AUDITING
Factoring agreement
Is it determined, where the field audit is conducted?
Contractual limitations included?
Entering the office
Inspection of the plant / offices
Auditable documents (to be predefined)
Present persons
Managing director / owner
Accountant / controller
Tax accountant
Representative of bank / broker
-
POSSIBLE RISK MITIGATION MEASURES
Detect problems on the earliest possible stage and find
solutions
Additional covenants
Increase of securities (e.g. personal guarantee of shareholder / managing director)
Type of contract (e.g. disclosed, undisclosed, inhouse)
Adaptation of contract terms (e.g. pricing, threshold, funding amount)
Definition of internal triggers (e.g. number of credit notes / indirect payments)
Frequency of financial checks
Frequency of field audits
Exclusion of problematic debtors (e.g. counterclaims, creditworthiness)
Exclusion of countries (e.g. because no risk coverage is possible)
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FIELD AUDITING / FINDINGS
TWO IMPORTANT REQUIREMENTS FOR ANYBODYIN THE FACTORING BUSINESS
CURIOSITYIf you have the slightest worry about a seller, donot ask him to come and see you.
GO AND SEE HIM
COMMON SENSEIf there is something that does not make sense toyou;
ASK THE CLIENT FOR EXPLANATION
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AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
CREDIT LIMIT DECISION PROCESS
Debtor assessment &Technical input
(by Limit processing department)
Approval ofcredit limit
(by Risk management andCredit insurance)
Renewal /Cancellation
(by Risk management andCredit insurance))
-
CHARACTERISTICS OF A CREDIT LIMIT
Revolving credit limit which is the base of the funding of receivables
Basis of Non Recourse Factoring agreement
Protection against bad debts to 100%
In case of debtors inability to pay, Factor is obliged to pay the full purchase price (90-120 days after due date) to the seller
Credit limit covers existing and valid receivables (shipments, deliveries made / services performed)
Principle of succession if receivables are partly approved
Conformity with terms of payment
Cancellations are valid upon receipt of such notice (delivery which has taken place before notice of cancellation is covered)
-
Direct debtor risk coverage
Assessment of clients debtors before signing a factoring contract
Regular assessment of debtors after signing a factoring contract
Assessment based on different information sources
Credit information agencies (D&B, Creditreform, Brgel, etc.)
Bank information / Reports / Identification numbers (Sirene, VAT etc.)
Balance sheet / monthly Profit & Loss statement
Rating / Grading (by credit insurance or rating agency like Moodys, S&P, etc.) / Press / Online publications
Receivables ledger of factoring client
Internal information sources (payment history, dunning status, etc.)
Credit limit decision
Credit limit with expiry date or until further notice / Rejection of credit limit
DEBTOR RISK COVERAGE WITHOUT CI
-
Via credit insurance
1-contract model (debtor risk coverage by credit insurance contract of Factor)
2-contract model (1 factoring contract and 1 separated credit insurance contract of client)
Factor accepts own credit insurance contract of his client
All rights of the credit insurance (CI) are assigned to the Factor (CI has to agree)
Obligations of the CI contract can be fulfilled either by seller or Factor
Factor normally covers the self retention (of 10-20%) in order to provide true sale
Currency risks to be considered
Through 2-Factor agreement via FCI
Risk assessment by Import Factor
100% Risk protection / Payment under approval 90 days after due date
INDIRECT RISK COVERAGE (RE-INSURED)
-
COMPARISON CI / FACTORING
Credit insurance
between 70 - 80 %
proof of insolvency or protracted default 180 days
20-30 times of payed premium
between 0,1 - 0,4% of turnover
Risk coverage
Guarantee payment
Insurance max.
Costs
Factoring
100%
90 days after due date of invoice
unlimited
between 0,5 - 1,5% of turnover
-
AGENDA
Factoring Areas of Risk
Seller Risk / KYC
Risk Mitigation
Debtor Risk Coverage
Debtor Risk Control
Risk Monitoring
-
1) Earlier cancellation, if for example
Negative payment behaviour
Increasing overdues
Request for installments
Deterioration of grading
Bad financial information
Negative development in certain industries
2) After information of CI
3) Credit Insurance covers debtor risks, but if bad debt ratios exceed 70-80% of paid premium
Increase of insurance premium, if claims are exceeding defined ratios
Downgrade of debtors and cancellation of credit limits
Tightening of insurance terms (i.e.higher first loss, franchise etc.)
CANCELLATION OF DEBTOR CREDIT LIMIT
-
Debtor is also a seller
Increased risk profile
High solvency requirements
Reverse Factoring
100% debtor concentration
High solvency requirements
Accumulation of credit limit amounts
Undisclosed Factoring / NNF
No direct contact to debtor
Risk of fraud
High solvency requirements
SPECIAL RISKS
-
THE END
Thank You for Your Attention!
Roberto Weckop
FCI Marketing Committee/
Deutsche Factoring Bank GmbH
Email: [email protected]
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MIDDLE EAST AFRICA EUROPE
India(4),SGP,HK Dubai Kenya, Nigeria* London
India, Indonesia, Singapore, Hong Kong, Australia,
Bangladesh, Pakistan,
Malaysia, Sri Lanka, China
UAE , Kuwait, Oman, Bahrain, Qatar,
Saudi ArabiaArab Multilaterals (Global mandate)
15 countries with 4 hubsNIGERIA West Africa
KENYA East AfricaSouth Africa Southern Africa
Egypt North Africa
United KingdomWestern Europe
CEE Region, Russia,
100+ 110+ 106+ 50+
Structured Trade & Commodity Finance,
Revolvers,Working Capital & Credit Insurance Backed solutions
Debt Capital Markets
Working Capital, LC/TRStructured Trade & Commodity Finance
Project FinanceNon Recourse FinancingOff-balance sheet Limits
Islamic Finance
Working CapitalProject Finance,
Trade FinanceDebt Capital MarketsStructured Trade & Commodity Finance
Structured Trade & Commodity Finance,
Credit Insurance backed Solutions
Debt Capital Markets
GEOGRAPHIES
OFFICES
COUNTRY COVERAGE
LENDERS
FINANCING TYPE
APAC
*Opening Shortly
-
Corporate Debt
For Corporates
Global Structured Trade Finance Power House with Recognised Origination, Structuring and Risk Management expertise
Conventional Debt
Non-Conventional Debt
Structured Trade & Commodity Finance
Equity ** Ancillary Services
Capacity Building
Structured Trade Finance
Insurance Advisory
Strategic Solutions & Mgmt. Consultancy
Bank Risk Confirmation
Portfolio Credit Default Insurance
Credit Rating Advisory*
Credit Reference / Appraisals
Lines of Credit (selectively)
For Banks & FIs
For Corporates and For Lenders
Commodity Finance
Credit Default Insurance
VC / Private Equity
SME IPO/ IPO/ Pre -IPO
FCCB / QIPs
Factoring
Factoring Advisory
* Credit Rating advisory services through our associate companies** India Centric Advisory only
Debt Capital Markets
-
IFFSPL
Facilitating trade
through factoring
and related
financial services
in trade Finance.
India Factoring and Finance Solutions Pvt. Ltd (IFFSPL)
BLEND has catalyzed the setting up of factoring company in India to facilitate trade promotion by bringing togetherFIM Bank, Malta, Banca IFIS, Italy and PNB, India
One of the Largest
Factoring Company in India with
Factoring assets of ~USD 200 Mn
To Promote Factoring Business in India
Brings Global Expertise of Factoring
Innovates New Factoring & Leasing Products
Focused on developing Markets
Aiming at expanding its foot print in India.
Provides technical support and assistance
Banca IFIS, Italy
FIM Bank, Malta
* Exited the JV recently
Forayed into New Business of Factoring
Acted as a Strategic Investor
Gave its Brand to the JV company
Provided Lines of Credit
Punjab National Bank, India*
Promoted & Spearheaded setting up JV
Played a role of a Marketing Partner
Catalyzed New Product Development
Blend Financial Services Limited
-
With the experience and expertise gained in Indiaand Africa, Blend can play pivotal role indevelopment of factoring in Developing andEmerging Markets.
Proven Track record
Technical Knowhow &
product capability
Understanding of Corporate
Financial needs
In depth understanding of Corporate Financial needs
and issues
Expert team with complete knowledge of factoring business/ product and
business processes
Instrumental in setting up India Factoring
Developed co-branded factoring Advisory Product called AFRIFACTOR with African Exim bank, Cairo
Advised East Africa based Jamii Bora Bank for
launching its Factoring Business
Wide structuring ability for each transaction. Have developed unique industry specific product.
15 years of extensive experience in factoring has provided in depth understanding of all challenges of the business, business process & product
Resource management
ability to assist raising
funds through innovative structures
Knowledge of challenges of product and
business and its mitigate
-
Key Elements - Successful Factoring Setup
AT THE START
Through understanding of economic condition/environment of the country
a. Regulatory environment, development of financial system, legal system support.
Understanding of existing factoring setup/environment
a. Analysis of existing factors and their business b. Liaise with the association, if any present in the country
Choosing the right team to prepare the plan which is profitable for the investors/stakeholders
Elements of successful startup
a. Local business specs
b. Legal requirements for the business
c. Human Resource Management
d. Financing/Fund Raising options
e. Suitable IT platform/solution
-
What we offer (FACTPaas)
Outsourcing
Consulting
Technology
FACTPaas (Factoring Process As A Service)
-
Consulting Factoring Start Ups
Blend would establish Factoring Business Platform on turnkey basis
Training of staff
Implementation of pre sanction process
Credit & risk management process.
Operations (Collection & Debt Management)
Sales & Marketing
Setting up the business process
Establishment of policy guidelines and standardoperating procdures
IT Factoring Management System
Finance
Simulations & Trial Runs
System control audits
Handover and assisting in resource mobilisation structures
Periodic Audits and system enhacements
-
How does it work?
Feasibility study is undertaken to
understand the Infrastructure
present in Country of Project to
undertake Factoring
Business Plan is prepared duly
approved by the Lender Client
Business Process is set up and modules are identified. Sales,
Credit Risk, Finance & Operations etc..
Manuals are made to provide guidance for each department for
undertaking the business
Blends Best in Class appraisal & rating
system is implemented
Standard operating procedure for each
department is documented along
with standard template and
reports for smooth business
functioning
Best in class software with ~50 reports, MIS and
Risk Management is negotiated with
the Vendor lowering the overall
cost
Training is provided to the factoring team
of Bank/lender on Marketing, Credit Appraisals, Risk
Management, Frauds & Prevention and
Exit Strategies
Simulations & Trial Runs
Handover
Periodic Audits
The assignment is on Turnkey basis and the time lines for setting up the Factoring Platform at Banks/Lenders offices takes 4 Months time to be fully operational
Feasibility Study /
Business PlanManuals
Standard
Operations
Procedures
Advise on
SoftwareTraining
-
SOPs and Process Flow
Describes and structure the different phases ofprocess of selling services, assisting marketingactivity and its decision making process.
Sales
Provides guidance on the risk appetite and risk policies.Credit & Risk
Contains the various processes of Finance andeligibility and authorization matrix.
Functions, duties and responsibilities of the financedepartment within the company.
Finance
Details the various processes of operations withorganization.
Functions, duties and responsibilities of thedepartment within the company along with workflow for operations activity
Operations
-
Operations
ProspectAppraisals/Sanction
Client sign on
Payments Collection MISRisk
Management
Sales
Front office Back office
Time to market reduced drasticallyCost effective since minimum capex required
Experienced factoring team backing the operationsClient manages only the front end
Allows the factor to grow as per the business needAllows to scale up business at faster pace
Expert team for Risk ManagementBusiness driven by MIS and analytics
Outsourcing Capex to Opex
-
Process client on boarding
Survey Financial Spread
Risk Rating AppraisalProspect
Skill set required are different
Outsourced to get access to experts in factoring appraisal
and deal structuring.
Debtor underwriting; ledgering and
operations risk assessment and
KYC
Spreading the financial
statements for better
understanding of growth
trends and financial
stability of the business of client/seller
Rating the client/seller and
debtor/buyer on risk
parameters
Overall appraisal of the
client on performance on
both operational and
financial parameters to allowing the
Factor to take informed decision
Access to experts in Factoring processes with in depth understanding & knowledge of risk associated with the business and transaction
-
Pre Sanction Process
Client/Prospect
Visits
Preliminary Analysis
Indication of Terms
Field Survey
Internal Risk Rating
Credit Assessment
Approval
Verifications
- Debtor/Vendor Verification- Client plant visit - Credit history verification- Reference checks Bank & Trade - Adherence to risk parameters as per
the policies - Product parameters
- Performance risk- Debtor/vendor track record
- Recommendation on overall performance and credit risk
- Recommendation on term & condition- Recommendation on contract- Documentation requirement Transaction &
Legal
A well defined and co ordinatedprocess facilitates informed decisionand enable risk mitigation
-
Operations Back Office Support
Client sign on PaymentsCollection/
Allocation MIS
Risk Management
Client and debtor on boarding and file and database
management
Limit setup
FIU Management
Trade Document checking and
handling
Counterparty setup and liaison
Fund/limit availability
Approvals
Fund release
Advise and reports to clients
Customer queries
Payment follow up
Dunning
Fraud monitoring
Payment allocation/
appropriation
Non Factored cash
Reassignments
Reports
Standard and customized
report
Insurance reports
Portfolio reports
Overdue reports
Cash forecast
Funding forecast
Random verification of invoices
Reconciliation of debt with debtors
Growth in no of invoices
Payment history invoice replacement, credit notes, direct
payments etc.
Concentration risk and portfolio rating
o Access to expert team delivering services across the value chain.o Supported by analytics providing periodic reporting and analysis of entire operations.o Resources export in various products.o Improved lead time providing seamless services to the client.o Opex model allowing factor to concentrate in marketing and sales activities to scale up the business.
-
IT Factoring Management System
IT system enables, integrated management of various assets involved in the factoring business.
Why it is required? Factor processes and input massive amount of complex data everyday.
Fast and reliable info necessary for business to identify trends
Proper tools are always required to take informed and effective decision
Increased productivity and optimal resource utilization
It cannot do Replace human judgment
Provide appropriate solution to the problem
Replace active account management
-
System Integration
Integration of Factoring Management System with other systems
(inside and Across organization)
Factoring Management
System
Bank
Regulatory systems
Other External Systems/
Organization
Accounting System
-
Operations Process Flow
Details the function, duties and responsibility of Operations
(work flow of operations activity in accordance with the Factoring Management system)
Client Setup
Debtor Setup
Processing of Documents
Disbursement
Payout
Receipt & Appropriation
Client Contact
Debt Management
- Collection follow up- Debtor follow up- Vendor follow up
- Facility note- Facility Setup- Amendments if any
- Debtor Setup- Debtor limit - Debtor contact
- Required documents- Document handling- Document checking- Checking procedure
- Fund availability- Limit availability- Exchange rates- Authorization
- Client -Entry - Authorization- Advise
- Correspondent
- Cheques handling- Receipt- Appropriation- Non Factored cash- Cheque returns
Dispute resolution
Dunning
Adjustments & Reassignments
NPA
Disaster recovery
Controls
Document checklist
- Overdue/Dunning- NPA Management- Legal recourse
-
Technology
256
Products Supported
l Factoring Bill Discount l Reverse Factoring l Order Finance l Import Factoring l Debt Management
Configuration l Multi Branch Setup lMulti Currency lMulti Fee Structure
Portfolio Management
l Powerful Engine l Parameterized view
Limits l Credit, Funding, Insurance and Facility Limits at counter party levell Individual client / Debtor limits
Accounting Full Account support to facilitate automatic / batch interface
Technology Factorin SaaS (Software-as-a-Service) is designed as a complete solution which bundles business functionality, a growing library of versatile components, frameworks and tools and professional solution integration service.
Reports Statutory, advance and MIS Reports; income statement, insurance turnover, receivable ledger, daily FIU, statements for client, debtor, counter party (CP), portfolio analysis, client concentration, audit reports, potential recourse reports, client geographical analysis, client age analysis, client exposure.
MessagingSupport
EDIFACT message interface.
Minacs is a leading business solutions company that partners with global corporations in the manufacturing, retail, telecom, technology,media and entertainment, banking, insurance, healthcare and public sectors. Minacs leverage years of process, domain and technologyexpertise to deliver superior business value to clients with their seamless Customer Lifecycle, Marketing, Finance and Accounting,Procurement and IT solutions and services. 20,300 Minacs experts across 3 continents a