B UILDING F ACTORING B USINESS P LATFORM P RESENTED B Y B LEND F - - PowerPoint PPT Presentation

BUILDING FACTORING BUSINESS PLATFORM

PRESENTED BY

BLEND FINANCIAL SERVICES LIMITED

AT WORKSHOP ON

“ACHIEVING SUCCESS THROUGH FACTORING”

ORGANIZED BY

AFRICAN EXPORT – IMPORT BANK

(AFREXIMBANK)

ON 2ND, DECEMBER, 2011

AT ACCRA, GHANA

Private & Confidential

AGENDA

BLEND: AN OVERVIEW FACTORING: AFRICA OVERVIEW FACTORING: INDIA EXPERIENCE BLEND : OFFERING

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BLEND FINANCIAL SERVICES LIMITED AN OVERVIEW

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BLEND OVERVIEW

Market Position

India based fast growing Corporate Advisory company

• ffering wide

range of financial services

People

Strong Management team, 130 strong professionals supported by team of experts in Banking, Factoring & Financial services

Global presence

Pan India network with International presence in Dubai, Hong Kong, Sri Lanka, USA and UK

Customer

Strong clientele globally with cumulative mandates of USD 2.42 billion

Relationship

Strong banking and corporate network in India and Internationally 4

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BLEND : BUSINESS MODEL

MSME focused financial advisory company poised to offer 360 degree financial solutions.

Seed Startup Growth Established Expansion Exit

Debt Syndication Angel Funding Working Capital & Structured Products Venture Capital Private Equity Mezzanine Capital Initial Public Offer Promoter funding/ Foreign Subsidiary funding FCCB/Private Placement Mergers & Acquisitions/LBO

GROWTH

MANAGEMENT CONSULTANCY SERVICES

Expert Advisory in Factoring Debt Syndication Investment Banking Allied services/advisory in Banking & Financial Services

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JOINT VENTURE – FACTORING

FIM Bank Banca IFIS Punjab National Bank Blend Financial Services Limited IFFSPL Facilitating trade through factoring and related financial services in trade Finance. India Factoring and Finance Solutions Pvt. Ltd (IFFSPL) Blend has catalyzed the globalization of factoring services in India by bringing PNB, FIM BANK and BANCA IFIS together to facilitate trade promotion through factoring

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JOINT VENTURE – ROLES

FIM Bank- Credit institution having specialization in International trade finance & Factoring. Punjab National Bank- 2nd largest Public Sector Bank in India

with Business of USD 113616 million.

• Focused on developing Markets and to expand its

foot print in India.

• To provide technical support and assistance to the

company.

• Foray into new business.
• Acts as Strategic Investor. Gives its Brand to the JV

company.

• To Provide line of credits.

Banca IFIS (Strategic Partner)- Italy based bank having expertise in factoring and trade finance business

Blend Financial Services: A leading financial services company with expertise in Factoring and allied activities

• Brings Global expertise of factoring business.
• Brings new factoring and leasing products.
• Marketing partner.
• New product development.

India Factoring and Finance Solutions Private Limited (IFFSPL) 7

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CERTIFICATES & ASSOCIATIONS

MOC with Afreximbank Blend Certified with Quality Management System Member of International Network of SMEs Member of International Factors Group “Extending support to the SME Sector in the continent of Africa. Blend and Afreximbank agree to cooperate in developing and promoting trade services between India and Africa” “Signifying its linkage with Global SME support

• rganizations”

The network comprises at present 80 members based in 32 countries in 5 continents

Blend is among the few Financial Services Company to avail ISO 9001:2008 Certification.

“IFG is the first international association

• f

factoring companies.” IFG helps factoring companies to conduct cross-border business acting as correspondents for each other

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FACTORING : BLEND’S EXPERTISE

With the experience and expertise gained in India and with the intermediation of relevant institutions, Blend can play a pivotal role in developing factoring product in Africa

Proven Track record Technical Knowhow & product capability Understanding

• f SME

SME centric

• rganization and

understands SME funding requirement and issue Expert team with complete knowledge

• f factoring business/

product and business processes. Instrumental in setting up India Factoring, in 12 months time has factoring turnover of approx USD 250 million with zero NPA

Wide structuring ability for each transaction. Have developed unique industry specific product. In factoring business for past 12 years; in depth understanding of all challenges of the business & product

Resource management – ability to assist raising funds through innovative structures Knowledge

• f

challenges

• f product

and business and its mitigate 9

FACTORING

INDIA EXPERIENCE

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FACTORING – INDIA SCENARIO

India - 2010-11 Number of Factoring companies: 11 Domestic Factoring Turnover (in Millions of EUR): 2,600.00 International Factoring Turnover (in Millions of EUR): 150.00 Total Factoring Turnover (in Millions of EUR): 2,750.00

• Started in 1991 with SBI factors
• Grew by over 800% from 1998 to 2003
• Between 2003 to 2006 grew by 120%
• Slowdown had a large effect on the product and turnover became half vis-à-vis 2008 in 2009
• 85% of the market share of SBI Global Factors
• Turnover Growth from 2009 mere 4% in 2010

Source – Factor Chain International 11

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FACTORING – INDIA SCENARIO

• Till date limited nos. of players engaged in factoring

activity.

• In 2010, factoring turnover reached Euro 2750

million, which constitutes roughly 0.40% of India’s

• GDP. Factoring turnover in India is approx. 0.048% of

the total Bank credit.

• Factoring turnover in India is mere 0.17% of the

World Factoring turnover and 0.77% of total Asia turnover.

• Products offered by factoring companies constitutes

Domestics, International, disclosed, undisclosed. Currently facility offered are with recourse factoring due to ban on credit insurance.

• International Factoring still to gain momentum and

factoring volume constitutes 95% of domestic factoring.

• Majority of the factoring business in India is

controlled by top 3-4 major players.

1625 1990 3560 5055 5200 2650 2750 1000 2000 3000 4000 5000 6000 2004 2005 2006 2007 2008 2009 2010

Factoring Volume - India

Million €

Source: Reserve Bank database/Factor Chain International

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FACTORING – INDIA SCENARIO CHALLENGES

Absence of Regulatory framework. High stamp duty on factoring transaction. Lack of supportive legal framework – uneven playing ground with Banking system. Competition from Commercial Bank. Access to information on credit worthiness.

Mitigated

• nce

Regulation

• f

Factor (Assignment of Receivables) Bill, 2011 is enforced Improved since establishment of CIBIL; Reserve Bank of India has already given approval to 3 new players Challenges are similar in African Market & the story can be build taking cue from Indian experience

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FACTORING – INDIA SCENARIO FACTORING BILL

For any factoring business to grow, there has to have robust legal and regulatory framework. With the advent

• f “The Regulation of Factor (Assignment of Receivables) Bill, 2011”, the same will get addressed giving

way to development of Factoring in India and allowing International Factors to set up shops. What we are going to achieve with “The Regulation of Factor (Assignment of Receivables) Bill, 2011”

• Registration of NBFCs as a Factor with Reserve Bank of India (RBI) and RBI to regulate the Factoring

Companies.

• Clarity on the Rights and Obligations of parties to the contract for Assignment of Receivables and setup of

Central Registry for registration of assignments.

• Linkage with MSME Act, 2006 which will give better market coverage to the Factor.
• Central Registry to be set up under section 20 of Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 to give right to the Factor(Assignee) on specific Assignment.

• Amendment in Civil Procedure Code, 1908 to extend the law relating to recovery of Debt to dues under a

Factoring Arrangement.

• Amendment in The Credit Information Companies (Regulation ) Act, 2005, bringing disclosure with

regards to recovery of Assigned Receivables.

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FACTORING – EMERGING BUSINESS OPPORTUNITY

• Trade finance to drive the global economies for years to come.
• Emerging economies will consolidate their position as the ultimate provider of

commodities, food and fuel to the rest of the world.

• Emerging economies are enhancing their political – economic influence in the

world.

• International trade is shifting towards open account terms – supply chain

financing and innovative trade finance to replace L/Cs.

• Factoring critical for trade finance – global economy.
• SMEs in emerging markets are important for driving global economy.
• Factoring becoming a mainstream product and getting wide acceptability.
• Liquidity crunch and factoring (boutique of services).
• Rewarding for – all stakeholder, i.e. institutions, investors, the product and

economy.

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FACTORING – BENEFITS TO SME

Source: A Study on Factoring by SIDBI

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FACTORING

AFRICA – OVERVIEW

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Factoring Companies in AFRICA

FACTORING - AFRICA

Africa Number of Factoring companies Domestic Factoring Turnover (in Millions

• f EUR)

International Factoring Turnover (in Millions of EUR) Total Factoring Turnover (in Millions of EUR) Egypt 5 50 150 200 Mauritius 2 122 3 125 Morocoo 4 905 166 1,071 South Africa 5 14,895 225 15,120 Tunisia 4 260 35 295

Major Factoring Companies - AFRICA

Egypt 1. Egypt Factors S.A.E. 2. Export Credit Guarantee Company

• f Egypt

Mauritius 1. MCB Factors Ltd 2. Mauritanie Leasing Morocoo 1. Attijari Factoring Maroc. 2. Banque Marocaine pour le Commerce et l'Industrie 3. Maroc Factoring South Africa 1. Nedbank Corporate 2. Standard Bank Debtor Finance Tunisia 1. UNION DE FACTORING (UNIFACTOR) 2. Tunisie Factoring SA Source : Factors-chain international

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Private & Confidential Factoring Companies currently present in Africa

NEED TO ESTABLISH MORE FACTORING COMPANIES

With the experience and expertise gained in India, Blend can play a pivotal role in development of factoring in Africa by way of assisting existing companies developing sound systems and establishing new companies/divisions (with a Financial Institution) on Turnkey Basis.

Source: Factor Chain International 20

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BLEND: OFFERING

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• WHO SHOULD GO FOR FACTORING?
• HOW TO PREPARE A FEASIBLE BUSINESS PLAN?
• WHAT SHOULD BE THE CAPITAL OUTLAY?
• HOW TO IMPLEMENT THE BUSINESS PLAN?
• WHEN TO START THE BUSINESS?

DEMOGRAPHIC VS DOABLE BUSINESS

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THE THOUGHT OF STARTING A FACTORING COMPANY

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Blend proposes to take up projects for establishing Factoring Business Platform on turnkey basis

Training of staff Implementation of pre sanction process

• Credit & risk management process.
• Operations (Collection & Debt Management)
• Sales & Marketing
• Resource mobilization structres

Setting up the business process –

• Establishment of policy guidelines and standard
• perating procdures
• IT – Factoring Management System
• Finance

Simulations & Trial Runs

System control audits Handover to pre trained team Periodic Audits and system enhacements

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FACTORING ADVISORY – START UPS

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Advisory to existing factoring companies –

• New product development.
• Assistance in building Credit, risk monitoring and scoring systems.
• Risk management & mitigation, fraud prevention systems and processes.
• Assistance on building sound IT interface to suit factoring.
• Assistance on Innovative resource mobilization structure (depending upon

strength of the principal and economic environment of the country).

• Credit Insurance advisory and liaising to facilitate down selling of portfolio.

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FACTORING ADVISORY – EXISTING COMPANIES

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SUCCESSFUL FACTORING STARTUP – KEY ELEMENTS

AT THE START –

Thorough understanding of economic condition/environment

• f 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

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SCOPING – KEY INFLUENCING FACTORS

Country’s legal infrastructure needs to address the issues with respect to legal assignment of receivables, security interests of the property, requirements of registration system of collaterals etc. Legislative Framework The role

• f

judiciary in settlement of disputes is also

• f extreme importance to

ensure effective factoring

• perations in any country

Judicial Framework Governed by a regulatory body and in case of no regulations factoring companies operate as per the corporate governance rules Regulatory Framework The accounting rules and tax code and their application and

• ther key elements and thus

this essential to clearly define the tax provisions

Tax Framework POLITICAL

• Political change : Change in

government through democratic election can influence future business strategy

• Trade policy
• Political uncertainty can lead to

a fall in investment by businesses and influence decisions on expansion and business ventures

ECONOMIC

• Sophistication of

Financial Markets – ease with which capital can be moved and raised

• Monetary and Fiscal

Policies – interest rates, tax regimes, government aid SOCIAL

• The impact on the local

environment not only affects human communities but can also inflict widespread ecological damage. TECHNOLOGICAL

• Availability and

developments in technology can have a powerful influence

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SCOPING - MARKET & PRODUCT SEGMENT

Advanced Stable Growth Start up

SME Mid & Large Corporate Factorable Industry Growth products Complex Products Advanced products Geographical Coverage

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SCOPING - COMPETITION & BARRIERS

Banks & Financial Institutions Existing Factoring Company Competitive Products

Competitors

MAJOR COMPETITOR

• Existing presence
• Vast resources
• Product Reach

Lack

• f

established players leaves gaps to explore the market

Product / Services Value Proposition Competition

Factoring Cash flow finance; increases with business

• Traditional

Financial Products Only finance/balance sheet funding/low cost Domestic & International Factoring Trade Finance Payment system widely used International Factoring & Invoice Discounting

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RISK MANAGEMENT

 Board Approved Risk Policy & Procedures  Risk Committees at Board/ Management Level  Combination of Rating and Appraisal System  Evaluation of Performance and Financial Risk  Non Traditional Information Sources  Independent Concurrent Internal Audit Reports to Board  New Product Introduction Process 28

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START UP SUPPORT

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BUSINESS Start up Manuals Training Daily Communication On Ground help & Support IT Implementation Decision making matrix Human Resource

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BUSINESS SETUP

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SOP’S AND PROCESS FLOW

• Describes and structure the different phases of process
• f selling services, assisting marketing activity and its

decision making process.

Sales

• Provides guidance on the risk appetite and risk policies.

Credit & Risk

• Contains the various processes of Finance and eligibility

and authorization matrix.

• Functions, duties and responsibilities of the finance

department within the company.

Finance

• Details the various processes of operations with
• rganization.
• Functions, duties and responsibilities of the department

within the company along with work flow for operations activity.

Operations

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SALES – SOP & PROCESS

Describes and structure the different phases of process of selling services, assisting marketing activity and its decision making process.

Products Formal Selling Structure Credit Assessment/ Approval Process Guidelines on pricing Sales & Marketing Strategy

• Products to offer
• Basic qualifying criteria & requirements
• Prospect tracking
• Indication of terms
• Client visits
• Documentation
• KYC guideline
• Client risk scoring
• Financial spreads
• Client survey
• Approval
• Fees
• Funding cost/Interest
• Collection cost
• Stamp Duty & Taxes
• Tariff Card

Application Form Debtor/Vendor Information Sheet Client Information Sheet & KYC

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CREDIT & RISK – SOP & PROCESS

Provides guidance on risk appetite and risk policies

Risk Management Managing Risk KYC - Policy & Procedure Credit Approval Process Quality of Asset & Provisioning Capital Adequacy Maximum Exposure Approval Powers Credit Risk Policy Counterparty Exposure Company information form Personal information form Client Assessment note Financial Spread Client Risk score Client survey form Debtor Assessment

• Responsibilities
• Risk Categories

Policy guideline for managing risk categories

• Provisions
• Revenue recognition

Policy guideline

• n

credit approval process & client assessment Management of CAR as per statutory regulation/requirement Guidelines on concentration risk/exposure norms Approving authority as per the facility type & exposure Framework for monitoring Credit risk as per the statutory and regulatory requirement Framework for decision making and internal limits for counterparty/country exposure

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FINANCE – SOP & PROCESS

Details the function, duties and responsibility of Finance Function (overall control and management of company’s Finances)

Duties & Responsibilities Liability Management Bank Accounts Investment & Treasury Accounting Expense Management Approving Authorities & guidelines

• Approving Authority
• Levels of authority
• Exceptions
• Budgetary controls
• Statutory monitoring & reporting
• Pricing & cost benefit analysis
• Expense control
• Borrowing
• Pricing
• Authorization
• Monitoring
• Liaising with Banks
• Investment
• Treasury
• Financial Statements
• Record keeping
• Financial Reporting
• Accounting System
• Statutory Audit
• Internal Audit
• Capital
• Operating

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OPERATIONS – SOP & PROCESS

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 Authorization Matrix Document checklist

• Overdue/Dunning
• NPA Management
• Legal recourse

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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

• f

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
• Find and provide appropriate solution to the problem
• Real time account management

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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

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PRE SANCTION PROCESS

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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 ordinate process facilitates informed decision and enable risk mitigation

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OUR OBJECTIVE

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Factoring Africa

Emerging Business Opportunity

BLEND PREPOSITION

Build Train Transfer

Feasibility/Scoping/Business Plan Business Setup Train the team on ground Transfer the business setup to trained team

POST TRANSFER SUPPORT (IF REQUIRED)

THANK YOU

Blend Financial Services Ltd 4th Floor,C Wing, Pramukh Plaza, Cardinal Gracious Road, Chakala, Andheri(East), Mumbai 400099, India t +91 (22) 67770000 |f +91 (22) 67770019 E factoring@blendfinance.com | w www.blendfinance.com