Let’s think about how important bridges are.

What is normally a quick commute directly across the river can turn into a much longer expedition if that bridge is closed for construction.  

In some regions of the world, constructing a new bridge can breathe fresh life into economic and trading relations between what used to be two disparate regions.

Before the Senegambia Bridge was completed in 2019, people travelling from northern Senegal to the country’s Casamance region, which is mostly south of the Gambia River, had to use an unreliable ferry crossing or go the long way around the river. Either of these options could take days, sometimes even a week if the queues were long. 

With the bridge, traffic can flow freely between the north and south, transit times are slashed,  and costs are a fraction of what they once were. This is a better situation for everyone.

A similar idea is true when it comes to the increasingly digital trade finance ecosystem.

Segregated technology systems that don’t interoperate can turn into digital islands sequestered from the rest of the world. Any data that does flow between them is a little bit like that unreliable ferry, maybe some will get through, but it is never enough and never in time.

Technology and free-flowing data can help eliminate these islands, opening traffic to the constant flow that a bridge can provide.  

One area that is remarkably poised to benefit from technology and data availability is factoring.

In trade finance, factoring is a pivotal mechanism for facilitating business transactions, especially for small and medium-sized enterprises (SMEs) that often struggle to secure traditional financing. 

This financial practice, which allows businesses to sell their accounts receivable at a discount to gain immediate cash flow, is gaining traction across Africa, buoyed by significant growth and the support of institutions like Afreximbank and FCI.

Unleashing the growth and potential of factoring

The growth trajectory of factoring in Africa reflects a burgeoning recognition of its value as a financial service. 

With more participants engaging in the ecosystem, factoring volumes have experienced a significant rise over the past decade – from approximately $22 billion to $42 billion – showing increased reliance on and confidence in factoring as a viable financing alternative. 

Despite the concentration of 89% of factoring volume in South Africa, the expansion from 10 FCI members in 2012 to 50 today underscores a continent-wide embrace of the practice.

The African Export-Import Bank – known as Afreximbank – has played a key role in this development, offering crucial support through funding facilities, education, and advocacy for legal and regulatory reforms. 

Regardless of its rapid growth, the factoring industry in Africa faces a list of challenges that impede its full-scale adoption and effectiveness, including the issue of liquidity constraints, which stifles the ability of factoring companies to meet the growing demand for financing.  

Another particularly poignant challenge is the emotional relationship that people and businesses tend to have with the idea of sharing their data.

Data sharing is emotional

The emotional relationship that people and companies have with their data is deeply rooted in concerns over privacy, competitiveness, and the overarching fear of the vulnerability that sharing critical financial information might entail. 

There’s a palpable apprehension among businesses, particularly SMEs, about the implications of disclosing financial details, not only to financial institutions but also within the broader market ecosystem. 

This apprehension stems from an inherent lack of trust, but is exacerbated by a pervasive education gap, where businesses are unaware of how their data can be used safely and to their advantage. 

The sentiment of viewing data as a closely guarded asset, often akin to a personal extension of the business owner themself, creates a significant barrier to the implementation of factoring and other financial services that are designed to enhance liquidity and growth. 

The consequence of this emotional connection to data is a fragmented financial landscape, where the potential for growth and innovation is curtailed by fears and misconceptions.

Addressing this challenge requires a multifaceted approach, focusing on building trust and demonstrating the value of data sharing through education and transparent practices. 

By fostering a culture of openness, supported by stringent data protection and privacy standards, financial institutions and organisations like Afreximbank aim to bridge the gap between the protective instincts of businesses and the transformative potential of data use.

As companies begin to understand that data sharing, when managed securely, can facilitate access to essential financial services, mitigate risks, and unlock new opportunities for growth, the emotional barriers currently impeding the progress of factoring in Africa can gradually be dismantled. 

This evolution towards a more open and trust-based approach to data is essential for the continent’s financial ecosystem to thrive, enabling businesses to leverage factoring and other financial instruments to their full potential. 

This is somewhere that technology solutions may be able to help.

Investing in technology is key

Technology is a linchpin in bolstering confidence within Africa’s factoring and broader trade finance sector. 

Investing in technology can help equip FIs with the tools necessary to enhance their risk management and compliance capabilities. Moreover, technology deployment in financial operations can significantly demystify the African market for potential investors and partners. 

Technology-agnostic and interoperable digital systems, such as MonetaGo’s fraud prevention solution, can further enhance the ability of data to bring widespread benefits to the industry.

An example is trade finance lending data, when securely compared in MonetaGo’s system using privacy-preserving technology, will provide African lenders with real-time information as to the genuineness of the financing request; providing a safeguard which helps to de-risk, and promote growth within the sector.

Enhanced data management and analytics, for instance, provide clearer insights into market dynamics, borrower behaviours, and potential risks, information that is instrumental in building trust, as it allows investors to make informed decisions. 

This reduction in perceived risk is critical in lowering the cost of capital, as investors and partners are more willing to engage at lower interest rates when confidence in the market’s stability and reliability is high.

Afreximbank’s initiative to provide facilities for FIs to invest in compliance technology not only addresses immediate operational needs but also signals a long-term commitment to elevating the standards of the African financial sector. 

This commitment reassures global investors and partners about the continent’s dedication to fostering a secure, efficient, and transparent financial ecosystem. 

As confidence grows, spurred by technological advancements and enhanced compliance standards, the influx of affordable funding will follow, catalysing economic growth and facilitating broader access to finance for African businesses.

The road ahead: Bright prospects for factoring

The future of factoring in Africa is bright, with our team at FCI projecting significant growth in the coming years, potentially reaching $100 billion by 2030.

Technological advancements and educational initiatives to demystify data sharing and improve the overall ecosystem for factoring are poised to drive this expansion, addressing existing challenges and unlocking new opportunities. 

Factoring stands at the forefront of revolutionising trade finance in Africa.

As Africa forges ahead on its path to economic resilience and growth, the significance of factoring, backed by institutions such as Afreximbank and FCI, emerges as a catalyst for increased liquidity, enhanced financial inclusion, and a surge in trade and development across the continent. 

The transformative potential of technology is foundational in reshaping market dynamics, particularly in de-risking financing that will encourage greater SME engagement in factoring. In this landscape, organisations like MonetaGo are poised to play a vital role, essential in unlocking the untapped potential of factoring in Africa and contributing to its economic prosperity. 

By building these bridges and opening the data flow, everyone will be better off. There will be greater transparency and more liquidity. 

This may be what is needed to help make real progress on closing the trade finance gap.

The post Bridging the gap: The transformative potential of factoring in Africa appeared first on Trade Finance Global.

The FCI 55th Annual Meeting in Marrakech marked a historical moment in receivables finance, unveiling three transformative initiatives set to redefine the industry’s landscape. This powerful trifecta, comprising UNIDROIT’s Factoring Model Law, the FCI Legal Study, and the IFC Knowledge Guide on Factoring Regulation and Supervision, reflects a collective endeavour meticulously designed to operate in harmony. 

IFC has consistently prioritised the support for SME finance. In addition to unlocking working capital finance for SMEs, factoring serves as a risk-mitigated mechanism relying on underlying trade for financiers, strengthens value chain relationships for companies, and enhances transparency and efficiency in financial systems.

In alignment with its dedication to SME finance, IFC has spearheaded the creation of the IFC Knowledge Guide, reflecting its commitment to enhancing working capital accessibility for SMEs and the development of the factoring market.

In Marrakech, Peter Mulroy, Secretary General of FCI, sat down with Qamar Saleem, CEO, SME Finance Forum, to talk about the importance of these initiatives, uncovering how the IFC Knowledge Guide, with its practical orientation, complements the foundational legal frameworks introduced by the Model Law and the benchmarking provided by the FCI Legal Study. 

Bridging regulatory gaps

Historically, the factoring industry lacked clear guidance on regulatory aspects. While FCI had previously submitted several papers offering insights into specific attributes for implementing a regulatory framework, a structured regulatory framework for the factoring industry was still missing. 

The IFC, in collaboration with the World Bank, recognised this void and created the ‘IFC Knowledge Guide on Factoring Regulation and Supervision.’ 

The IFC Knowledge Guide is an exhaustive resource providing a deep dive into the factoring industry from a regulatory perspective. 

The guide is crafted to cater to a diverse audience, including policymakers, decision-makers, officials at central banks, and supervisory authorities. Beyond local borders, its scope extends globally, reaching governmental departments and the personnel of international institutions like the World Bank. 

Saleem said, “Often, factoring and regulatory regimes are confined to the domestic level, leading to inconsistencies. This makes it challenging to discern the necessary elements for a robust factoring and supply chain network.”

While the guide is primarily aimed at central banks and regulators, it doesn’t solely focus on the regulatory aspect. Instead, it intertwines practical elements and addresses several global challenges facing the industry. 

Saleem further underscored such an essential feature of the Knowledge Guide, “We felt we need a knowledge guide which is practical, offering practical insights and concrete recommendations.” 

The guide, consisting of six main sections, goes beyond theoretical frameworks. It provides practical guidelines to policymakers, offering examples and best practices that can be leveraged for setting up effective regulatory regimes. 

The document, therefore, serves as a comprehensive tool, providing options and recommendations for establishing a coherent regulatory framework, allowing any central bank/regulator to gather the most important elements when developing regulations within the factoring industry.

Furthermore, complementing UNIDROIT’s model law, the IFC guide represents a reference point for law reforms and future harmonisation efforts. As Saleem pointed out, “The knowledge guide complements the model law, giving industry practical insights and examples on how to set up the right regimes.” 

Navigating the regulatory seas: A central banker’s compass

Steering regulatory frameworks, central bankers can use the IFC Knowledge as a crucial navigational tool since it is designed to empower them with insights into three pivotal elements: regulations, supervision tools, and regulatory financial aspects.

One of the central tenets of the Knowledge Guide is its comprehensive coverage of global factoring laws. With the increasing adoption of factoring laws worldwide, Saleem highlighted the importance of the guide for central bankers, stating, “The guide sheds light on these aspects, giving central bankers valuable insights into the evolving regulatory framework.” 

For central bankers, this translates into a vital resource for understanding the global factoring regulations thereby facilitating informed decision-making.

In addition to regulations, the guide also enables central bankers to gain practical insights into the necessary supervisory and control tools. Saleem said, “It goes deeper into local policies, considering not only regulatory perspectives but also central bank standpoints.” 

This in-depth exploration provides central bankers with the tools needed to ensure effective oversight and regulatory compliance.

Moreover, the Knowledge Guide recognises the significance of capital requirements and capital adequacy regulations within regulatory frameworks. 

Saleem noted, “The guide equips central banks not only with regulatory insights but also with a perspective on capital adequacy.” This holistic approach ensures that central bankers have a well-rounded foundation of all strategic areas to set standards or policies they expect financial institutions to meet. 

A collective force for global impact

The factoring industry has embarked on an unprecedented journey, unveiling three initiatives that promise to propel the factoring and receivables finance industry to new horizons. 

Introducing three sophisticated legal and technical initiatives — UNIDROIT’s Factoring Model Law, the FCI Legal Study, and the IFC Knowledge Guide on Factoring Regulation and Supervision — the industry stands on the verge of a transformative era.

The journey began with the launch of the Factoring Model Law in 2019, and was quickly followed by FCI’s Legal Study in 2020, which lasted nearly 3 years.

FCI Legal Study, a comparative study of legal and regulatory environments for factoring and receivables financing in Europe and some other major markets. 

The study spans 91 countries, making it the most extensive and comprehensive legal study in receivables finance to date, and incorporates the 2013 EUF legal study, a comprehensive review of the legal and regulatory framework in the 27 EU countries.

Saleem emphasised the FCI Legal Study’s role as the missing piece of the puzzle, not just providing information but serving as a benchmark for stakeholders in the factoring market. 

In conjunction with the release of the IFC Knowledge Guide, UNIDROIT has unveiled its recently adopted Factoring Model Law. This self-standing legal regime addresses legal and institutional gaps in the factoring industry, facilitating seamless factoring transactions.

The transformative trio operates on multiple levels — the legal foundation, extensive coverage and benchmarking, and practical implementation. 

Expressing excitement about the potential these initiatives hold, Saleem said, “I view it in three key aspects: the law sets the foundational framework, the knowledge guide offers practical insights, and the legal study serves as the industry benchmark.” 

Together, these three initiatives form a cohesive foundation for the growth and development of factoring and receivables finance, each playing a distinctive yet interconnected role in reshaping the factoring industry.

The post Video | Educating regulators: The IFC factoring guide appeared first on Trade Finance Global.

The FCI 55th Annual Meeting in Marrakech marked an important moment in receivables finance as the International Institute for the Unification of Private Law (UNIDROIT) launched the Model Law on Factoring. 

This initiative follows the introduction of UNIDROIT’s first instrument in the field of factoring, the UNIDROIT Convention on International Factoring. Specifically designed to address legal and institutional gaps in the factoring market, the Model Law on Factoring looks at countries lacking a comprehensive legal framework for secured factoring transactions. 

Concurrently, the International Finance Corporation (IFC) unveiled its ‘Knowledge Guide on Factoring Regulation and Supervision’. Together, these initiatives create a foundation ready to elevate legal and investor confidence, progressing the factoring industry to unprecedented heights.

In Marrakech, Peter Mulroy, Secretary General of FCI, sat down with Jose Ignacio Tirado, Secretary General of UNIDROIT, to discuss the journey leading to the UNIDROIT Model Law on Factoring, its key features and its pivotal role in shaping the future of receivables factoring. 

The evolution of UNIDROIT Model Law on Factoring

Factoring is a powerful financing scheme, particularly for SMEs, to access finance with fewer limitations through unlocking funds tied up in their unpaid invoices. 

The immediate access to cash for the supplier/seller makes factoring an essential financing instrument, specifically for developing countries where a large number of SMEs form the backbone of their economies, often with limited access to traditional bank loans. 

What sets factoring apart is the fact that credit is intricately tied to the value of a supplier’s accounts receivable rather than the supplier’s overall creditworthiness. 

Thus, it enables higher-risk suppliers to shift their credit risk to more creditworthy buyers. Moreover, with a continually growing volume of international trade, cross-border factoring presents a solution to working capital obstacles, facilitating SMEs’ active participation in global markets. 

Despite these advantages, persistent constraints in accessing credit, especially within emerging markets, coupled with the absence of a uniform framework facilitating the development of factoring, have impeded its broader adoption. Tirado said, “We need to develop standards to trade with countries and ensure that SMEs can access financing.”

Consequently, these challenges prompted the World Bank to acknowledge the necessity of a standalone Model Law on Factoring. Initiated in 2018, the World Bank recognised the significance of such a law, particularly for emerging markets contemplating the introduction of factoring domestically. 

The proposal highlighted the predominant focus of existing instruments on international transactions, accentuating the need for more guidance for nations to develop functional domestic factoring frameworks.

The World Bank’s proposal for the UNIDROIT 2020-2022 Work Programme, as highlighted by Tirado, presented three critical reasons for developing the Model Law: 

• Increasing access to credit, 
• Overcoming ongoing constraints on credit in developing countries, 
• Addressing the existing gap in international rules for factoring. 

This joint effort between UNIDROIT and the World Bank laid the foundation for a model law that not only addresses international transactions but also accommodates the legal intricacies of individual countries, fostering a more inclusive and standardised approach to factoring regulations. 

Key features of the UNIDROIT Model Law on Factoring

The UNIDROIT Model Law on Factoring has been strategically tailored to meet the diverse needs of both developed and developing economies. 

As Tirado underscored, “The Model Law on Factoring is a stand-alone instrument and therefore is easy to grasp not only from the legislator’s standpoint but also from those that need to apply it. The judges, the lawyers and, of course, the financial industry.”

One of the distinctive features of the Model Law on Factoring is its autonomy, eliminating the need for constant reference to additional legislation, and simplifying the application process within a legal framework. 

Emphasising its universal applicability, Tirado said, “The Factoring Model Law is an amazing balance, easy to interpret and implement by various legal families.”

Moreover, the Model Law on Factoring’s development involved an inclusive process with experts and observers of diverse backgrounds. 

Tirado highlighted this inclusivity, stating, “It caters for the needs of both civil and common law approaches to legislation. That’s very important because no country and no system should feel alien to this model law.”

The Model Law on Factoring is comprised of fifty-four articles that strike a balance between comprehensive coverage of the different factoring techniques and clarity. 

Tirado said, “It covers recourse and non-recourse with notification without notification national and international it does cover, of course, it caters for both, ordinary and reverse factoring.” 

This approach offers clarity without adding unnecessary regulatory complexities. Establishing a sound legal and regulatory framework allows the industry to ensure that all factoring transactions receive adequate legal and regulatory support. 

This, in turn, provides investors with adequate recourse in local courts when needed, boosting investor confidence and enhancing protections for the factoring and receivables finance community. 

As Tirado highlighted, “By providing this simplified, yet clear model law, from a global perspective, we hope to enhance access to finance, reduce transaction costs, and ultimately foster thriving economies.” 

Supporting infrastructure: IFC’s Knowledge Guide

In conjunction with UNIDROIT’s Model Law on Factoring, the IFC unveiled its ‘Knowledge Guide on Factoring Regulation and Supervision’ during the meeting. 

The main objective of this Knowledge Guide is to direct legal reforms supporting receivables finance and thereby promoting inclusive access to credit in emerging markets. 

Offering recommendations for a unified regulatory framework, particularly for non-banking financial institutions (factoring companies) engaging in receivables transfer, the guide complements UNIDROIT’s Model Law on Factoring. 

It provides valuable insights tailored for policymakers and decision-makers involved in the law reform process, such as officials from central banks, supervisory authorities, and governmental departments.

In addition, since 2013, the European Federation for the Factoring and Commercial Finance Industry (EUF) has been conducting a comparative legal study of the factoring industry covering 27 EU countries and six benchmark markets. 

This year, FCI expanded this Legal Study to encompass all the markets it serves, resulting in a comprehensive analysis of 91 countries. This expansive Legal Study is the most extensive ever produced for Receivables Finance.

The launch of the UNIDROIT Model Law on Factoring, the IFC ‘Knowledge Guide on Factoring Regulation and Supervision,’ and the FCI Legal Study stand as a significant stride forward. 

These three vital and harmonious documents are set to propel the factoring industry, particularly in emerging markets where the industry has yet to develop. 

Tirado described it as a “perfect trio,” these documents establish a robust framework for legal certainty, instil investor confidence, and, most importantly, foster the growth of the receivable finance industry globally.  

The post Video | UNIDROIT’s Model Law on Factoring and IFC’s Knowledge Guide in Marrakech appeared first on Trade Finance Global.

This eighth Summit is a unique opportunity for industry leaders to network and address topics that really matter to the factoring industry. The programme will address the latest updates and promote the impact of the factoring and commercial finance industry in Europe. The first day will focus on an industry overview of the region, sharing reports from 2022 and will introduce the German market. 

April 20, day one of the summit, will include the following:

• Opening Statement – Mr Fausto Galmarini, EUF Chairman 
• Welcome to Germany -Professor Hartmann-Wendels, University of Cologne
• 2022 Preliminary Statistics and Figures on the European Factoring Industry – Mrs Magdalena Barczak, Chairwoman of the Economic and Statistics Committee
• Factoring Market in Germany, advancements and opportunities – Mr Michael Menke, Member of the board, Deutscher Factoring Verband e.V. (DFV)
• Presentation on e-invoicing, PSD Revision and Future EU Initiatives on Open Finance – Mrs Fratini Passi, CBI Managing Director, 
• Report from Legal and Prudential on what kept us awake at night in 2022 – Mr Diego Tavecchia, EUF PRC Committee Chairman, and Mrs Magdalena Wessel, EUF Legal Committee Chairwoman
  • These reports will focus on inter alia developments in the areas of supervisory harmonisation, late payments and default as well as the EU-wide implementation of Basel III, including credit insurance as a credit risk mitigation technique, followed by a Q&A. 

Day one’s sessions will conclude with presentations from the Gold Sponsors Codix and Comarch, with speeches from Mr Philipp Schmindinger, Head of Codix German Branch, and Mr Karol Lezzczynski, Comarch Factoring Product Development Manager. 

Following the conclusion of day one sessions, the summit continues with a networking dinner in an authentic German Brauhaus with a view of the Cologne Cathedral, allowing all participants to connect in a more relaxed environment.

21 April, day two of the summit, will explore the industries’ most relevant topics. Speakers include:

• Presentation on the EU Banking Sector Asset Quality & Market Developments in Non-Performing Loans (NPL) – Mr Gaetano Chionsini, Head of Statistics, European Banking Authority (EBA)
• Panel Discussion on Sustainability and ESG with views from the factoring and credit insurance industry, chaired by Mr Fausto Galmarini
  • Panellists include:
  • Mr Dirk Hagener, Atradius 
  • Mr Wolfgang Reiser, BNP Paribas Factor GmbH 
  • Mr Guglielmo Santella, Allianz Trade
  • Mr Christian Stoffel, Coface
• EU Commission Update on Late Payment Directive Revision’s Impact on Corporate Sustainability
• Presentation on CRR Reform
• Presentation on The Sustainable Supply Chain Finance Opportunity – Mr Luca Gelsomino, Academic Director of the Supply Chain Finance Community

The second half of the day will feature a panel discussion on where we will be by 2030, chaired by myself, FCI Secretary General. 

Panellists include Mr Kevin Day, Lendscape; Mr Mikko Malminen, OP Corporate Bank, and Mr Aurélien Viry, Société Générale Factoring, and they will share their expertise and knowledge on the industry’s legal and regulatory landscape, the future of the industry, the potential SCF evolution following recent fraud cases and more. 

The day and conference will conclude with the closing remarks by FCI Chairwoman, Ms Daniela Bonzanini, and EUF Chairman, Mr Fausto Galmarini.

The EU Factoring and Commercial Finance Summit is the only European Conference organised by the factoring industry for the factoring industry. Don’t miss out, join us as we share the latest updates and get involved in promoting and celebrating the impact of the Commercial Finance Industry which supports the real economy and employment in Europe. Register to attend via www.fci.nl and download the brochure to find out more. Registration closes on 12 April 2023.

The post EU Federation & FCI join forces to promote the factoring and commercial finance industry in Europe appeared first on Trade Finance Global.

Estimated reading time: 4 minutes

At the European Bank for Reconstruction and Development’s (EBRD) Trade Facilitation Program Forum in Istanbul, Turkey, TFG spoke with Peter Mulroy, secretary general of FCI.

FCI is a global association of companies, financial institutions, and non-financial institutions engaged in open account receivable finance.

The association, active in over 90 countries, has 400 members that collectively comprise around 60% of the global volume and 90% of cross-border factoring activity of the $3.5 trillion global factoring industry.

This broad global access allows Mulroy to travel the world and speak on the successes in the factoring and receivables industry, often using Turkey as a role model. 

The success of Turkey’s factoring industry

Since the first invoice was financed in the country in 1989, the industry has increased.

“There were just a few players back in the early 90s,” Mulroy said.

“Today, over 60 financial institutions are engaged in some capacity relating to domestic and international receivables finance.”

One factor for this growth has been the foresight of past Turkish leaders to develop a robust legal and regulatory environment around receivables finance to ensure that financiers are confident that the courts will protect their investments.

Another factor for Turkey’s success is the nature of the business conducted within its borders.

“Turkey is a consumer product country, meaning there is a significant amount of consumer products manufactured here, especially in some core factored industries like textiles and apparel,” Mulroy said.

“Hence (small- and medium-sized enterprises) SMEs have been very successful in capturing that business in open account with manufacturers in Turkey.”

A third critical success factor is that the country developed a successful factoring association with widespread participation across various stakeholder groups.

This has created closer relationships with regulators, better industry education, increased government cooperation, and better access to international markets.

“Turkey is one of the most successful international factoring markets in the world, and they have done that by developing a very strong relationship with global financial institutions around the world to support the cross-border element,” Mulroy said. 

The impact of macroeconomic shocks on factoring in Turkey

Nearly every industry in the world has been impacted by current macroeconomic events like the Russia-Ukraine conflict, soaring inflation, food shortages, or the energy crisis.

While it has felt these events, the factoring industry in Turkey may not be as negatively impacted as some others.

“Factoring always does well in crisis times,” Mulroy said.

“That’s a given and has been supported by evidence of past economic upheavals over the past century.”

Turkey has also experienced a significant influx of immigration since the crisis, from countries like Ukraine, Russia, and Belarus.

Experts attribute this influx to Turkey acting as a welcoming hub and crossroads for travellers unable to secure visas to enter the European Union (EU).

Similarly, many manufacturers established in Ukraine, Russia, or Belarus have shifted their operations to Turkey to help mitigate the supply chain disruptions that ensued following the invasion. 

These manufacturers exporting to the EU have also benefited from the decline in the value of the Turkish lira relative to the euro, leading to significant order increases.

The result of this is a thriving Turkish export market.

“Turkish exports are booming––it’s one of the strongest markets in the world in terms of trade,” Mulroy said.

“But risk is a different matter––the political risk environment here is pretty high.”

In some instances, local banks that do not have a strong presence in other currency markets struggle to access dollar or euro capital.

“But overall, the strengths still outweigh the weaknesses,” Mulroy said. 

“Even though you see the inflation and rising interest rates, the factoring industry is doing pretty darn well here in Turkey.”

The post VIDEO | FCI’s Peter Mulroy on Turkey’s trade and factoring prosperity appeared first on Trade Finance Global.

It was comprised of FCI members and companies who operate as funds supporting the factoring industry. 

The working group was formed to debate the role FCI can play in supporting the creation of receivables finance marketplaces. 

The initiative was originally formed under the auspices of the ICC Banking Committee with the heading “IITF workstream”.  

New players in factoring

The factoring industry has grown in volume over the past 20 years from over $600 billion in 2001 to over $3.4 trillion in 2021. 

As receivables finance (RF) increases globally, so have the liquidity needs of the financial players.  

Banks have traditionally played the role of financiers to the factoring sector, but with the rise of fintechs and other third-party providers, new means of accessing alternative forms of funding via the capital markets are increasing. 

Banks have historically played this role due to the secure nature of the industry and the sound controls factors use to reduce risks. 

All types of investors are looking for ways to increase yield and safety, especially in the recent low-interest-rate environment. 

Most recognise the fact that the RF market is considered low risk when executed properly. 

These new players include distributors, hedge funds, insurance companies, and pension funds and they are looking at this asset class as a secure way to generate higher returns. 

Bringing buyers and sellers together

FCI recognises the need to bring the market makers together and provide a platform that can match buyers (investors) and sellers (SMEs) in one marketplace where they can facilitate business transactions.  

Today more non-bank players are interested in this initiative, especially as balance sheets are becoming more constrained and most players, including Banks and non-bank financial institutions (NBFIs), need a strong platform with effective rules and standards to follow.  

In general, the innovators of future platforms are being driven by fintechs and other non-traditional players, not by the banks.  

Over the past year, FCI has been in contact with a number of companies interested in partnering to offer the industry a global receivables exchange platform with the most robust technology available.  

Many of the initiatives were based on three important and dynamic developments in our industry over the past two decades.

History of exchanges

There are a variety of exchanges worldwide that trade everything from stocks, bonds, and commodities to currencies and cryptocurrency.  

Trading on an exchange, whether stock markets or derivatives exchanges, started as physical locations where trading took place. 

Some of the best known include the New York Stock Exchange (NYSE), which was formed in 1792, and the Chicago Board of Trade (now part of the CME Group), which has been trading futures contracts since 1851.  

Today there are more than a hundred stock and derivatives exchanges throughout the developed and developing world.  

Exchanges, however, are more than just physical locations – they also set the institutional rules that govern trading and information flows about that trading. 

They are closely linked to the clearing facilities through which post-trade activities are completed for securities and derivatives traded on the exchange. 

An exchange centralises the communication of bid and offer prices to all direct market participants, who can respond by selling or buying at one of the quotes or by replying with a different quote. 

When two parties reach an agreement, the price at which the transaction is executed is communicated throughout the market. 

The result is a level playing field that allows any market participant to buy as low or sell as high as anyone else as long as the trader follows exchange rules.

Electronic exchanges

The advent of electronic trading has eliminated the need for exchanges to be physical. 

Indeed, many traditional trading floors are closing and the communication of orders and executions are being conducted entirely electronically. 

The London Stock Exchange and the NASDAQ are completely electronic, as is Eurex, the world’s second-largest futures exchange. 

Many others, as they phase out floor trading, offer both floor and electronic trading. 

The NYSE bought the electronic trading platform Archipelago as it moves increasingly toward electronic trading. 

Derivatives exchanges such as the CME Group maintain both old-style pits and electronic trading. 

Brazil’s BM&F maintained both until 2009.  

The foreign exchange market

By far, the largest exchange is the foreign exchange market, which is larger than even the stock market, with a daily volume of $6.6 trillion. 

The foreign exchange market (forex, FX, or currency market) is a global decentralised or over-the-counter (OTC) market for the trading of currencies. 

This market determines foreign exchange rates for every currency and is unique because of the following characteristics:

• its huge trading volume, representing the largest asset class in the world;
• its geographical dispersion;
• its continuous operation: 24 hours a day except for weekends; and
• the variety of factors that affect exchange rates.

Largest stock market exchanges

The world’s stock market exchanges have a combined market cap of $89.5 trillion and the 10 largest stock markets represent nearly 80% of the global stock market value.  

The top two—the NYSE and Nasdaq—capture 46% of the total, but while their amalgamated sum is massive, there are vast discrepancies between the value of each.

Rank Exchange Market Value

#1 NYSE $28.19T

#2 Nasdaq $12.98T

#3 Japan Exchange $5.37T

#4 Shanghai Exchange $4.92T

#5 HK Exchange $4.48T

#6 Euronext $3.85T

#7 Shenzhen Exchange $3.49T

#8 London Exchange $3.13T

#9 Saudi Exchange $2.15T

#10 TMX Group $1.97T

*Market capitalisations as of April 2020

Technologies driving the evolution of the capital markets 

When you look at the history of the markets through the lens of technology, we have certainly come a long way.  

We can travel back to the 1300s when Venetian money lenders sold debt issues to other lenders and individual investors carried the information with them on slates. 

Trade (meaning, “path or course of conduct” and commerce (meaning, “together” and “merchandise) are ancient needs of human beings. 

Today, with the evolution of technology, global capital markets are rapidly accelerating their digitalisation journey, leveraging the software-as-a-service (SaaS) model, as well as emerging technologies, including the cloud, machine learning, and artificial intelligence (AI). 

Accelerating digitalisation

The pandemic that started in 2020 has only intensified this move toward digitisation. 

Exchanges can now link together, expanding the number of transactions.  

Exchanges all over the world are connected through systems that automatically enter an order placed on one exchange but executed on another.  

While most people around the world know Nasdaq as the stock exchange group that operates exchanges in the US and across the Nordic and the Baltic regions, Nasdaq is also a major technology provider to other exchanges and financial institutions worldwide. 

Nasdaq’s technology powers more than 2,300 companies in 50 countries that span the world’s financial industry, including capital markets infrastructure operators, market participants, banks, and regulators. 

Plus, trading is no longer limited to daytime operations. 

It is a 24-hour open for business exchange.

The newest entrant to global exchanges has been cryptocurrency exchanges using blockchain technology. 

While Bitcoin is the name we all hear about, there are other industries adapting blockchain to facilitate trade and foster integrity, security, and speed amongst the users.

The Receivables Exchange, United States

The idea of creating an electronic auction marketplace for investors to purchase receivables was something quite novel back at the turn of the century when The Receivables Exchange was the first to design an invoice auction exchange platform in the US.  

Small and medium enterprises (SMEs) gained access to working capital by auctioning invoices to a global network of institutional buyers who competed to buy receivables via a real-time marketplace.   

These sellers controlled all of the pricing parameters, setting the minimum advance rates they were willing to accept and the maximum fee they were willing to pay. 

Investors, known as buyers (including banks, hedge funds, asset-based lenders, and family offices) competed in real-time to purchase these assets. 

The concept was an alternative to traditional factoring as we know it today.  

The best bid that met the seller’s parameters won the auction.  

Although it had all the hallmarks of a great strategy, due to its initial focus on SMEs it suffered from fraud, dilution, and other risk issues.   

When NYSE Euronext acquired a minority stake in it back in 2011, the business was split in two.

One focused on “Corporate Receivables Programs” – which were large corporate receivables purchase programs that targeted sellers in the Fortune 1000 space – while the other was a joint venture with Ariba that focused on supporting only SMEs (the latter never flourished and was later shuttered). 

The business with the NYSE never fully blossomed and on 1 January 2016, had been rebranded under the Receivables Exchange name and was later taken over by LiquidX focusing on the large corporate segment that is still active today.

NAFINSA, Mexico

The Nacional Financiera (NAFINSA) was created in 1934 in Mexico. 

It is one of four development banks in Mexico and launched its supply chain finance/reverse factoring program called Productive Chains, which has become one of the most important programs in Mexico supporting SMEs.   

One of the key traits explaining the success of the Productive Chains program is its innovative reliance on an electronic platform, which made it extremely user-friendly for potential supplies to factor their invoices. 

Given the challenges in Mexico´s financial market, supplier credit is one of the main sources of credit for private firms to finance their current operations. 

In this regard, Productive Chains successfully tackled a key weakness of the financial system in Mexico, achieving great effectiveness and efficiency. 

Today both large companies and government entities participate in the program, many of which invite their suppliers (whether SMEs or individual entrepreneurs) to participate as well. 

Membership offers attractive financing options to its participants, and the key instrument is the innovative technological platform for immediate, electronic factoring. 

Through very simple and transparent procedures, it allows SME suppliers in any such designated Productive Chain to rapidly obtain financing by discounting their receivables.  

This so-called “reverse factoring” scheme differs from that of traditional factoring because it targets a select group of MSMEs associated with the supply chain of large companies of renowned strength and solvency. 

The participating anchor corporate buyers are chosen on the basis of high standards in terms of business strength in order to reduce the risk of loss to the financial institution. 

Trade Receivable e-Discounting System (TREDS), India

In 2008, the Financial Sector Reforms (FSR) Committee first recommended the concept of a receivables exchange in India through their report “Hundred Small Steps”. 

A platform was established, whereby credit exposure was backed by large anchor buyers (corporates), who offered confirmed invoices of their SME suppliers for discounting. 

The platform was based originally on another highly successful reverse factoring/confirming model in Mexico created by NAFINSA, a Mexican development bank.  

In 2014, the Reserve Bank of India (RBI) issued guidelines on the TREDS platform to focus solely on domestic receivables business via a traditional factoring model. 

Today, the platform generates approximately $500 million in domestic receivables volume per month. 

Based on this success story, the Government of India launched the ITFS to create a similar auction marketplace for exporters and importers to obtain financing from multiple financiers at competitive pricing. 

The platform will also enable financiers (such as banks, financial institutions, and factors) to expand their reach to exporters and importers without needing an on-the-ground presence in the regions where they are present.

Next Iteration 

FCI is in discussions with various investors, mostly located in Asia, that are interested in the creation of receivable exchanges.  

We believe the market is ripe for their evolution as intermediaries to support both large corporates and SME suppliers. 

The benefits to FCI members would be significant. 

The platform would provide greater reach across geographies for import factors to offer debtor underwriting/credit protection services. 

Export factors would have increased access to a larger piece of the pie, especially those who are not restricted geographically, by: 

1. providing financing to exporters without taking up large exposures (based on the invoice by invoice auction process),
2. increasing the basket of financing products in due course including traditional and reverse factoring, and 
3. creating a digital KYC process and AML checks on business activities. 

Market uncertainty

We know that banks are decreasing their exposure in correspondent banking, not increasing. 

Credit insurance has its own set of complications, and the rating agencies’ wrap issue is a question mark. 

We are also seeing issues like accounting treatment and transparency issues relating to reverse factoring programs being debated, although the large accounting bodies like the IFRS and FASB are attempting to answer some of these questions. 

This creates uncertainty and insecurity in our industry, the pillars of any successful capital market.

Role of blockchain in an exchange

This takes us to the issue of fraud.  

The risk of another Greensill arising is mitigated as this concept of an open auction marketplace with buyers matching sellers against real and actual invoices reduces the risk of fraud considerably. 

Of course, the natural direction of such a marketplace would best be served by distributed ledger technology (DLT), a decentralised ledger that records every transaction that takes place on it. 

Once this data is stored, it cannot be modified by a third party. 

This type of ledger is a paradigm shift for the factoring industry as it increases trust, security, and transparency. 

Inherent in the ledger is the traceability of data shared across the marketplace. 

One can easily start to see that fraud, such as the Greensill incident, would be unable to thrive in such an environment. 

This type of financial accounting offers up efficiencies and cost savings while ensuring the integrity of the transactions.  

Other examples of blockchain in practice

Blockchain applications go far beyond cryptocurrency and bitcoin. 

With its ability to create more transparency and fairness while also saving businesses time and money, the technology is impacting a variety of sectors in ways that range from how contracts are enforced to making government work more efficiently. 

There are dozens of examples of real-world blockchain use cases for this pragmatic, yet revolutionary technology. 

Some of these examples of blockchain applications today include:

• Secure sharing of medical data
• NFT marketplaces
• Music royalties tracking
• Cross-border payments
• Real-time IoT operating systems
• Personal identity security
• Anti-money laundering tracking system
• Supply chain and logistics monitoring
• Voting mechanism
• Advertising insights
• Original content creation
• Cryptocurrency exchange
• Real estate processing platform

On 28 January 2022, the SEC approved the first stock exchange to use blockchain technology.  

The BSTX exchange won approval to use blockchain technology to fuel key aspects of stock trading.  

Looking ahead

As we know there exists today a $1.7 trillion trade finance gap globally. 

A large portion of this is receivables based, but certainly, with the development of exchanges, a significant amount of this gap can be realised. 

The RIAC working group started at the beginning by defining the need for bringing the capital markets and the factoring industry together. 

Unfortunately, it was rather apparent that both sides have not evolved enough to effectively come together to manage this significant opportunity, especially in the receivables space. 

We have witnessed some unique new entrants who have tried but failed. 

Again no better example can be cited than the Greensill case, which showed all of us what can go wrong when an industry bends the rules and manipulates well-founded structures that have been in place for well over a century. 

This is a warning sign to those investors and other arms-length funds when proper due diligence fails. 

We know that those who get it right are aware of what is happening underneath the hood of their car, but those who do not will be subject to operational, concentration, dilution, fraud, and other risks! 

The other stark observation is the role rating agencies played, placing strong investment ratings on a structure that was in essence a house of cards. 

Let’s be honest, Greensill became the darling of Wall Street, businesses, and governments alike, a catastrophe in the making. 

Not coincidentally, there were many scratching their heads about the abuses that can take place in the receivables finance market. 

The role of the FCI and RIAC working group

This RIAC working group was formed in the shadow of this story, in part to debate the role that FCI and the industry can play in supporting the creation of well-functioning capital markets that are aligned with the factoring and receivables finance community.  

Investors want confidence and certainty in the asset class including a high level of trust. 

So, the question is, what kind of format/structure should an investor use? 

Do we rely on a model similar to the Credit Suisse/Greensill example? 

Highly doubtful. 

Credit Suisse under new management has all but abandoned this business model after carefully examining the numerous errors in judgement it made when looking under the hood of its own car!  

Also, the issue of multiple legal jurisdictions bedevils most in the space. 

The necessity of getting this right is paramount. 

Without it, we can never truly achieve the formation of a single uniform receivables exchange. 

The challenge for us is still how to create some kind of rule book but this will take time.  

A global receivable exchange

During the recent 54^th FCI annual meeting held in Washington DC last month, we invited a handful of Fintechs from Asia to the US capitol to provide insight on their efforts to develop a modern exchange for this asset class.  

Amit Agarwal, head of open account at DBS Singapore and a member of the FCI executive committee, led the effort and moderated a panel on the discussion about the future of technology in the factoring space.  

Nearly every significant asset class has its own specialised exchange, whether it be in stocks, currencies, soft or hard commodities, or the like.  

Is it not time that the receivables finance industry, which when taken together in all of its parts well exceeds $5 trillion in volume, should be evolving towards the creation of its own exchange?  

With the aftermath of a very challenging environment for the industry stemming from the recent great recession and the pandemic, especially those non-bank financial institutions trying to raise new sources of capital during these times of upheaval, and coupled with the continuous dark clouds on the horizon, is it not evident that the time bodes well for the launch of receivables exchanges around the world?  

Read the latest issue of Trade Finance Talks, July 2022

The post Is the time ripe for the formation of a global receivable exchange? appeared first on Trade Finance Global.

During the crisis, it was clear that factoring was one of the best methods when it comes to trade finance, assisting in working capital and protection, especially for SMEs.

The factoring market in Europe has always been strong and resilient, representing around 68% of the total global market, with €1,842 billion in volume for 2020. This will only increase as our markets move into the post-pandemic era. 

FCI and the EU Federation for the Factoring and Commercial Finance (EUF) are two of the largest factoring associations, representing over 98% of all European market players.

On 4-5 April, FCI and EUF will host the seventh annual EU Factoring Summit, which will take place both online and in Rome, Italy.

The purpose of the event is to provide a unique opportunity for industry leaders to network and address topics that really matter. The programme will update and educate attendees on topics such as:

• An update on the most recent evolutions on the European factoring scene
  
• Understanding the definition of default regulations and what the implications and actions are
  
• What the factoring industry is like in Italy
  
• A report from EUF Technical Committees on what roused the factoring industry in 2021
• What the consequences of the late payment directive are
  
• What some of the key take-aways are for the updated legal study
  
• Where technology and fintech developments are headed
  
• What the digital finance agenda of the EU Commission is
  

All of these topics will be presented, discussed, and debated by leading industry experts.

Some of the confirmed speakers include the likes of:

• Magdalena Barczak (Economic and Statistics Committee)
• Daniela Bonzanini (FCI)
• Gaia Cioci (CRIF)
• Antonella Correra (European Commission)
• Louis-Marie Durand (Euralia)
• Fausto Galmarini (Assifact Italy & EUF)
• Vitor Graça (ALF)
• Françoise Palle Guillabert (EUF)
• Diego Tavecchia (PRC Committee)
• Magdalena Wessel (Legal Committee)

This event will explore a new way of conferencing through a hybrid format. We will be hosting the physical event in Rome, Italy, and will be live-streaming it through the Cvent digital event platform.

Both this platform and the official FCI App will be available to all attendees, giving everyone the best opportunity to network, no matter where they are participating from. 

Discuss the latest updates and get involved in promoting the industry by registering to attend this year’s EU Factoring Summit via www.fci.nl/event/eu-factoring-summit. 

The post FCI: European market players to gather at EU Factoring Summit amid tough times for trade appeared first on Trade Finance Global.

2020 Performance and 2021 Prognosis

While most of the financial industry suffered from the pandemic of 2020, many credit insurers had one of
the best years in terms of performance! Claims were quite low considering the extensive volatility in the
global economy. The programs initiated by the European governments were supportive, which helped to
reduce the claims requirements, and the EU state support was extended until 30 June 2021. For 2021, the
outlook doesn’t look too bad. It is uncertain what the governments will do, but it may be better than
expected with their continuous stimulus and support to industry.

Given the number of zombie companies supported by artificial government stimulus, the Berne Union and
ICISA expect a surge in claims towards the end of 2021 into 2022. The moratorium which supported these
companies is soon coming to an end. US retail, as well as the commodity sector were hard hit. They
indicated that there were other frauds and defaults, but they did not make the headline news. Some of the
smaller private insurers decided not to join any of the government support schemes due to the costs and
controls required by the governments.

Euler stated that they expect to see a negative turn in terms of risk with the approaching cessation of
global government stimulus programs. The credit insurance volume in 2020 declined slightly year over
year. Some sectors were hit harder than others, like hospitality/tourism, retail, etc.…but it wasn’t a big
deal to get the limits back for these sectors. Euler stated that they also see a similar increase in demand,
driven by the need for capital relief products from the banks. However, they did report the first drop in
credit insurance-backed factoring volume in over 30 years.

Coface said in 2020, and the hardest hit was retail, especially in the US, with a significant rise in longer
claims. Turnover was impacted as well. There is a need to have more of a customer-centered approach and
look at the specificities of the transaction. Projections for 2021 show they are expecting a spike in risk later
in the year. But, at the same time, they are also seeing demand pick up, driven by an increase in new
business and experiencing an increase in pricing due to the increased risk.

Atradius stated it was mainly a decent year in 2020. The expectations for 2H2021 is to see an increase in
claims, but at least today, it’s business as usual. Numbers regarding their factoring portfolio are stable.
They see more demand as well for capital relief products. Regarding Africa, they have some concerns,
especially in South Africa. However, the rest of the markets there are quite small and not as much as a
worry.

Evolution of reverse factoring/payables finance post Greensill

The working group discussed the perils of the Greensill Capital case, which filed for bankruptcy protection
on March 8, 2021. They had focused on providing financing to companies using supply chain
financing/reverse factoring and other related receivables finance services. Their credit insurer, BCC/Tokio,
had pulled out of the program, which resulted in a domino effect, ultimately resulting in their bankruptcy.

The question is what caused the domino effect. The industry bodies seem to be of the opinion that it
wasn’t due to the non-renewal of the policy. It appears the domino effect was caused by sub-standard risks
fed into the policy that the insurer was no longer willing to take on its balance sheet. Greensill was
apparently unable to place the risks during the 6-month notification period. This tells us that the domino
started long before the time that Greensill started talking to the media about the non-renewal of their
credit insurance policy. It might have been the last push, but it was most certainly not the start of the
death-spiral of an otherwise thriving company, as Greensill may have wanted people to believe.
Some unsavoury practices have come to light, including potential fraud. Although their company was
known as a leader in the SCF space, their demise is not considered a systemic risk to the financial or the
factoring and receivables finance sectors. However, it could result in potential future regulations around
such issues as regulating third-party funds, the factoring of future invoices, and possibly some spotlight on
the role of credit insurance in the RF space. Questions were raised in the group about the responsibility of
these funds and who regulates them. There was also concern about the arms-length approach that these
funds take with regards to factoring. In the Credit Suisse case, it appears that they did not have a handle on
the operations risk that existed. Some also expressed concerns about the reported rogue underwriter in
Australia with the subsidiary of Tokio Marine in Australia, BCC, who exceeded their authority, resulting in a
large concentration risk in a suspect-related group of clients.

One stated they had a number of factoring companies worried about the fall-out effect regarding the
Greensill case. Many now disclose all reverse factoring exposure in the buyer’s balance sheet and disclose
their programs voluntarily. The increase in disclosure will be viewed positively by all parties. SCF may be
initially tarnished, but the working group believes there will be little residue effect on the credit insurance
sector. SCF is estimated to be less than 1% of the total credit insurance sector’s market. We have to go
back to basics and follow the number 1 rule,” Know Your Client”!

Some from the factoring side believe reverse factoring will get a bloody nose, a pity since it wasn’t the
product’s fault, and more about poor business practices from all parties. In France, SCF is not as developed
and is more practiced in Spain and Portugal. We have lessons to learn from this case, such as on-board
clients under such programs without strong and robust due diligence and positive ratings of the anchor
buyer.

One thought expressed was that we need to see more rules and standardization in SCF in general. Issues
like extended terms need to be dealt with. We need to re-think the way of accounting treatment in
general. We need to have clarity regarding accounting treatment. Euler agreed, saying this issue is a hidden
risk. We need clarity from the accounting boards.

Receivables Finance as Investable Asset Class – Impact of AR Funds from crisis

It was stated that as factoring and SCF increased, so has the liquidity needs of players. Banks have
traditionally filled this gap. But our industry has nearly tripled in size over the past decade. This is changing
with the rise of Fintechs and other third parties, such as the increased prominence of hedge funds, family
offices, and other types of asset managers on the playing field. With a low-interest-rate environment,
investors are looking for yield and safety. But the general consensus was the need to support this important initiative. However, the Greensill case brought to light some of the concerns that these arms- length funds have when underwriting programs and getting engaged in the RF space. The obvious outcome is that some Funds are not doing their due diligence. There is also an issue of the practice of loss payeewhen these funds are working with factors/SCF firms as they do not have the control as we saw in theGreensill case. In general, these funds pose a potential risk to the industry when operating indirectly and at arm’s length. The ones that get it right know what is going on underneath the hood of the car, and those that do not will be subject to operational, concentration, dilution, and potentially fraud risk.

Rating agency role should also be questioned about the market’s reliance on determining these program’s
creditworthiness. They don’t know enough about the risks, and just having the backing of credit insurance
isn’t enough. Investors should not solely rely on the strength of a third-party risk mitigant. It appears that
BCC didn’t want to be insuring these third-party, arms-length investors. It wasn’t a AA investment-grade
structure!

Some insurers stated that they are investing in such forms like securitizations involving bankruptcy-remote
entities. If it’s a good seller, good structure, and the buyers are diversified, this is something they can do in
their sleep. The rise of these funds is a positive and potential negative development if they don’t do it
right. NBFIs support more SMEs than the banks, so they are strategic. As long as they can structure the
programs securely and the structure is sound, they will again get the insurance sector’s support.

Joint CI/RF coordinated lobbying to adopt insurance shields globally

FCI had led an initiative in June 2020 to support the creation of a credit insurance shield in the US.
Together with ICISA, we had organized a joint letter including the support of the major credit insurers to
promote the formation of a shield in the US. It was sent to the US Treasury and US Department of
Commerce. We received an acknowledgment, but in part due to the elections, it did not get much
attention but was a worthwhile exercise. Unfortunately, it was not included in the top 100 priorities of the
Trump administration. But we agreed that a second attempt should be made with the new Biden
administration. Willis had written an effective paper, so it is a good basis for future communication.
Some stated that regarding the European programs, in hindsight, the industry is not sure of their
effectiveness. They were quite expensive to the insurers, reducing margins and ceding income to the
governments with no corresponding claims. Opinions are divided, in some countries like Denmark, it was
well-received, but in others not so much. There were also challenges in implementing these credit
insurance shields. There was no formality to them, so each market experience in the EU was different.
And they were very hard to administer for the insurance companies. But the overall benefit was obvious,
supporting line structures in a fast deteriorating global economy!

Conclusion

In many ways, Factoring and Credit Insurance are tied at the hip – we are reliant on each other, symbiotic
to a great extent. In essence, what happens to the one happens to the other due to our close correlation of
supporting financing commercial transactions. As the reader can see, this past year was quite tumultuous
but not as cataclysmic as some doomsayers were predicting. In fact, both industries got through it without
too much trouble for a myriad of reasons. Although we are in a strong rebound economically, many predict
a spill-over effect later in the year or 2022. Time will tell, and we will need to keep a close eye on these
developments. We learned many things this past year, especially how a house of cards can collapse when
factoring, whether traditional or reverse is not practiced properly. But we also learned how factoring has
survived in one of the worst economic periods in our lifetimes. With the potentially increased risk environment approaching, companies will seek to mitigate the risk of their receivables. And credit insurers
will surely step up. In fact, factoring always does well during challenging periods. Its secure nature and the
controls that factoring affords will always allow it to sail through these harsh economic times.

The FCI Factoring-Credit Insurance Working Group is comprised of the following representatives:

Patrick DE VILLEPIN, FCI Chairman, France
Vinco DAVID, Secretary-General, Berne Union
Arturs KARLSONS, Associate Director, Berne Union
Rob NIJHOUT, Executive Director, ICISA, Netherlands
Richard WULFF, Executive Director in-waiting, ICISA, Netherlands
Laurent GOUREVICH, Head of Fin Institutions – Western Europe, Coface France
Bert VAN HAGEN, MD, Atradius, Netherlands
Lucia BALIETTI, Global Head-Direct Sales, Euler Hermes, France
Stephanie PELLET, Structured Finance Manager, Euler Hermes, France
Julian HUDSON, Global Head of Trade Credit, Chubb, UK
Kanayo AWANI, MD, Intra-African Trade, AfreximBank, Egypt
Peter MULROY, Secretary-General, FCI, Netherlands

The post View from the top: factoring and credit insurance in 2021 appeared first on Trade Finance Global.

The most complete education programme on Factoring & Receivables Finance, FCI Academy is providing a wide range of globally recognised and accredited educational offerings that aim to support personal, corporate and market development globally.

Until now, most of its courses, apart from the ‘Introduction to Factoring and Receivables Finance’ and the ‘Fundamentals on Domestic and International Factoring’, were only available to FCI members.

FCI Academy’s specialised online courses have been designed for those who wish to receive short and targeted education on particular topics in factoring and receivables finance.

These include the ‘Pre-sales and Seller On-Boarding in Factoring Course’, the ‘Seller and Marketing Factoring Course’, the ‘Legal Course’, ‘Seller Selection and Control Course’, ‘Buyer Risk Control Course’, and the ‘Dispute Prevention Handling Course’.

The content is applicable for domestic and international factoring and receivables finance.

FCI Academy Certificate Programmes aim at enriching knowledge in specialised subjects, and developing the skills of professionals involved in Legal, Risk Management, and Sales and Marketing functions through a combination of selected courses.

The Certificate of Sales & Marketing in Receivables Finance enhances students’ selling and marketing skills with a detailed focus on promoting Factoring and Receivables Finance.

The Certificate of Legal Aspects in Receivables Finance allows the student to learn the necessary legal knowledge on the FCI Two-Factor System, with a special focus on the General Rules for International Factoring (GRIF).

The Certificate of Risk Management in Receivables Finance helps the student to develop the necessary skills to manage and mitigate risks to form the basis for sustainable business growth.

Commenting on the recent opening of the courses to all players in the industry, Mrs. Aysen Cetintas, education director at FCI, said:

“With more than 50 years’ accumulated knowledge, FCI Academy aims to further develop the capacity-building of the industry. Now more than ever, we recognise that education is a key element for the future development of the factoring and receivables finance industry. Offering more courses to all stakeholders will, I hope, help the markets develop faster, but will also limit risks such as fraud. At FCI Academy, our overarching objective is to provide high-quality learning on Factoring and Receivables Finance to the Global Financial and Trade Community.”

About FCI 

FCI is the Global Representative Body for Factoring and Financing of Open Account Domestic and International Trade Receivables.

Founded in 1968 as a non-profit global association, FCI has close to 400 member companies in more than 90 countries.

FCI offers a unique network for cooperation in cross-border factoring. Member transactions represent nearly 60% of the world’s international correspondent factoring volume, driven by FCI’s three major focus areas: 

CONNECT – FCI’s business network supports cross-border factoring activities through which its members cooperate as export and import factors. 

EDUCATE – FCI promotes and develops best practices in both domestic and international factoring and related Open Account Finance products under FCI Academy umbrella.

INFLUENCE – FCI promotes and defends the Industry with stakeholders and policymakers worldwide. 

The post FCI Academy opens up all online courses to the entire factoring market appeared first on Trade Finance Global.

Factoring declines were recorded in most regions except Asia-Pacific and Africa.

The global figure gives a significant indication that the industry had a very challenging year, in line with the havoc that the 2020 pandemic created globally, all countries were impacted differently based on their own specific measures and response to this crisis.

Some reached the lowest factoring volumes in the six years reported, while others managed to cope better to the environment.

We entered 2020 with the residue from the trade war, major geopolitical issues, and the finalisation of Brexit.

However, the most significant event, COVID-19, was just unknowingly right around the corner, and the biggest threat to world trade.

Fast-forward to the year end, and compared with the previous year’s 2,917 billion euros, the 2020 estimated volume of 2,724 billion euros represents a decline of approximately 6.6%. International factoring volume also declined by 4%.

Europe, the largest contributor, representing around 68% of the total with 1,842 billion euros, recorded an overall decline of close to 7%.

From a factoring volume perspective, top five players include France (-8%), Germany (-0.2%), United Kingdom (-17%), Italy (-11%) and Spain (-2%) which makes up 70% of the market.

The vast majority of the countries reported declines, as can be seen in the report, but there are a few positive and noteworthy exceptions such as the Netherlands (+1.4%), Romania (+3.5%), and Hungary (+3.2%).

Turkey, another significant player in Europe showed a significant decline, from 22 Billion in 2019 to 16.5 billion in 2020, representing a -25%.

Asia-Pacific represents around 26% of the global volume with 697 billion euros, an increase of 1.4% over 2019’s 687 billion euros.

In 2020, over 521 billion euros related to Greater China (Mainland China +7%, Hong Kong -5%, and Taiwan -12%).

Possible explanation of China’s growth could be due to the increase in exports in the H2 2020, and also due to the rebound expected after the previous year of decline.

Japan showed a growth rate of 3.5%, reaching 51 billion euros, while on the opposite side, with the lowest value in the last six years, Singapore reported a decline of around 27% with 29 billion euros and India -30% with 3.5 billion euros.

The Americas together is in third position, representing a 5% share of the total world factoring volume, with an overall figure of 150 billion euros, having reported a decline of around 30%, certainly the hardest hit region globally.

South and Central America, which has a 3% share of the total world factoring volume, at 84 billion euros experienced a staggering decline of 37%.

The top three players present themselves as follows: Chile (-20%), Brazil (-60%), Mexico (-43%) while Peru, another important factoring market showed only a decline of 2%.

North America, which has a 2% share of the total world factoring volume, with just less than 67 billion euros, continued its decline trend reported in the last years, with -23% from 2019.

The North America region was hit hard by retail bankruptcies in the H1 2020, which impacted the P&L of many members there, but also in part affected volume for the remainder of the year.

Africa, which has grown nicely over the past few years, witnessed a slight growth in volume in 2020, representing a +3% increase.

The total market adds up to a total of 25 billion euros, indicating only slight growth, accounting for less than 1% of world factoring volume.

Certainly, the decline was driven by the massive reduction in GDP experienced in the first and second quarters of 2020.

However, as FCI reports its figures in euros, considering the eurozone countries account for over half of global volume, there were some major swings in currency valuations during the year, which in some cases drastically impacted the translated figures.

You can see that most major currencies depreciated against the euros in 2020, including the US dollar (close to -10%), the Brazilian Real (-42%), the Mexican Peso (-15%), the South African Rand (-14%), Turkish Lira (-36%), and the Japanese Yen (-4%), to name a few.

So the declines experienced globally, but especially in the Americas, have to be taken into consideration in light of this significant depreciation in world currencies.

FCI also reports the figures in US dollars, which understandably shows a much better performance, with world growth up by +2.6%.

The FCI Global Factoring Statistical Report presents on an annual basis the key factoring data around the world.

It covers domestic and cross-border factoring volume collected from over 350 members in 94 countries.

The full final statistical report is expected to be released by end May 2021 and will also be made available on the FCI website.

The post FCI reports 6.6% drop in global factoring statistics in 2020 appeared first on Trade Finance Global.