Transcript Factoring as a Tool for SME Development

FACTORING
AS A TOOL FOR SME
DEVELOPMENT
Marie-Renée Bakker
Lead Financial Sector Specialist
World Bank Factoring Conference, Warsaw
October 23-24, 2003
Why A Factoring Conference For
The EU-8?
Limited Credit to the EU 8 Private Sector
 Development Potential of Factoring
 SME Development Tool
 Increased Regulatory Focus
 Potential Bank Group Role

Bank Credit to the Private Sector/GDP
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1996
1997
1998
1999
2000
2001
Years
EU 15 Bank Credit to the Private Sector
EU 8 Bank Credit to the Private Sector
2002
EU 8 Sources of Domestic Credit
400,000
350,000
Total Assets (USD, Millions)
300,000
250,000
200,000
150,000
100,000
50,000
0
1996
1997
1998
1999
2000
2001
Years
Total Banking System Assets
Stock Market Capitalization
Total Leasing Assets
Total Factoring Volume
Total Domestic Traded Corporate Debt
EU 15 Sources of Domestic Credit
35,000,000
Total Assets (USD, Millions)
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
1996
1997
1998
1999
2000
Years
EU 15 Total Banking System Assets
EU 15 Stock Market Capitalization
EU 15 Total Domestic Traded Corporate Debt
EU 15 Total Leasing Assets
EU 15 Total Factoring Volume
2001
Total Factoring Volume in EU Member and EU Accession Countries
600,000
9,000
Factoring Volume EU Member (USD, Millions)
8,000
500,000
7,000
400,000
6,000
5,000
300,000
4,000
200,000
3,000
2,000
100,000
1,000
0
0
1996
1997
1998
1999
2000
Years
Total Factoring Volume (EU 15)
Total Factoring Volume (EU8)
2001
2002
Total Factoring Volume/Total GDP in EU Member and EU Accession Countries
7.0%
6.0%
Total Volume/Total GDP
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1996
1997
1998
1999
2000
2001
2002
Years
EU 15 Total Factoring Volume/EU 15 Total GDP
EU 8 Total Factoring Volume/EU 8 Total GDP
Factoring Volume in the EU Accession Countries
9,000
8,000
Factoring Volume (USD, Millions)
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Slovakia
Countries
1996
1997
1998
1999
2000
2001
2002
Slovenia
Total Factoring
Volume (EU8)
EU 8 Factoring Volume as Percent of GDP
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Czech Republic
Estonia
1996
Hungary
1997
Latvia
1998
Lithuania
1999
Poland
2000
Slovakia
2001
Slovenia
2002
Selected EU 15 Factoring Volume as Percent of GDP
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
France
1996
Germany
1997
Ireland
Italy
1998
Portugal
1999
Spain
2000
The
Netherlands
2001
UK
2002
Factoring Fundamentals
Factor
Obligation to pay
A/R
Buyer
Goods
Seller
Factoring Fundamentals
 Purchase/pre-financing of A/R
 Administration and collection of A/R
 Credit Approval
 Credit Risk Management
 Credit Risk Transfer
Domestic Factoring
Benefits to the Seller
 Constant Cash-Flow
 Lower Administrative Costs
 Reduced Credit Risk
 More Time to Concentrate on Core
Business Activity
Export Factoring
Benefits to the Exporter
 Faster collection
 Ability to Sell on Open Account Terms
 Increased Access to Foreign Markets
 Protection Against Export Credit
Losses
Import Factoring
Benefits to the importer
 Allows buying on open account terms
 No need to open letters of credit
 Preserves existing credit lines
Enabling Environment

Credit information services

Functioning payments system

Efficient IT infrastructure (internet)

Specific legal framework for factoring services

Conducive taxation

For export factoring -- FX license

Ideally – credit insurance
Increased Regulatory Focus
 Trend towards conglomeration
 Factors often owned by banks
 Issues in consolidated supervision
 Reporting standards
 FX exposures
 Large/connected exposures
Role of the World Bank Group
 Initial Focus: EU Accession Countries
 Factoring Conference
 Conference Follow-up - Research Paper
 Lessons for other emerging markets
 Technical Assistance and financing