FIEO urges exporters to explore alternative financing mechanisms
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| Sitting on the dais are from left, Mr Rohit Pandya, Dy. Gen. Manager, ECGC; Mr. Navratan Samdria, Past President, FIEO; Mr. Ganesh Kumar Gupta, Vice President, FIEO; Mr. O P Garg, President, FIEO; and Ms Tinoo Joshi, Secretary General, FIEO |
As more and more international trade is being done on open account and extended credit terms, the exporters need to explore alternative mechanisms of financing such as ‘factoring’ and ‘forfaiting,’ which is becoming popular in today’s global context. Ms. Tinoo Joshi, the FIEO Secretary General said this while welcoming the participants to a Workshop on ‘Export Financing Options, Credit Ratings for SMEs and ECGC’ organized by FIEO on 21 December 2006 at New Delhi. The Workshop was organized in order to educate the exporters about the alternative instruments of export credit. Global Trade Finance Ltd., an export factor; SMERA, an agency involved in upgrading the credit worthiness of small and medium exporters and ECGC were the three special invitees to the Workshop.
Mr. Arvind Sonmale, Managing Director & CEO of Global Trade Finance while detailing about the products available to exporters for better management of export receivables, said "factoring provides an immediate and flexible source of working capital for exporters in local or invoiced currency." The GTF provides post-shipment finance and other services such as 100% Bad Debt Protection, payment on 90 days past due date, protection in the currency of transaction etc. The GTF has started a special scheme known as "SSI - sanction your own loan facility" hyperlinked to the GTF website which provides instant sanction to exporters for export factoring, claimed Mr. Sonmale.
Mr. Rohit Pandya from ECGC informed that factoring would be available with ECGC as a financing option from 1st January 2007. Mr. Sumit Mehta from SMERA explained the benefits available for small & medium enterprises through the rating given by SMERA.
The FIEO President, Mr. O P Garg speaking on this occasion also advised the exporters to explore financing mechanisms other than normal bank credit, but at the same time he said that small & medium exporters must be made aware of the "hidden costs" levied on such financial products. Mr. Garg advised the exporters to keep themselves regularly informed about various market & financial risks. Mr. Ganesh Kumar Gupta, Vice President, FIEO during his address urged the banks and factors to provide funds to an exporter upto his limit sanctioned by them even if his previous bill is overdue.
"DA bills without LC are dangerous and International Chambers of Commerce and banking agencies should make rules to protect the interest of small and medium exporters who are not so well versed with the payment terms and their implications," urged former FIEO President, Mr. Navratan Samdria.
Factoring
The origin of factoring goes back to ancient Rome where successful manufacturers and merchants used a mercantile Agent or Factor to administer the sales of their merchandise. The use of the Factor/Agent grew throughout the Middle Ages. During the period of colonization by European countries from the sixteenth century onwards, exporters of consumer goods from Europe sought the help of these mercantile Agents or Factors to promote their trade.
The concept spread across the Atlantic and grew rapidly in the United States, as there was a significant demand for European merchandise. The services of the Factors during that period usually included the following:
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Taking physical possession of the goods on consignment;
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Storing them;
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Finding buyers and delivering the goods to them;
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Collecting payment from the buyers.
From its humble origin, factoring has come a long way today. It has gained lot of prominence and acceptance and is being offered as a valuable financial product among major financial institutions and banks.
Forfaiting
Forfaiting evolved in the 1960s and was originally used to finance exports from countries in Western Europe to East European countries. With the growth in global trade, the product is now widely used to finance trade with all geographic areas, and has also been extended from its traditional role of post-shipment finance to provide pre-export finance, structured trade finance, project finance and even working capital.
In order to remain competitive, exporters are often faced with having to allow their importing partners longer period of payment. Such difficulties expose the exporter to a number of risks which can assume substantial proportions, depending on the country of the importer and the period allowed for payment. On top of typical commercial risks, such as insolvency of the importer, unwillingness or inability to pay, exporters have to consider the difficulties in appraising the monetary, economic and political risks inherent in the importer’s country. The requirements placed on the financial institutions by exporters seeking solutions to the ever-growing complexities of international financing have led to an increased demand for Forfaiting.
The term "a forfait" in French means, "relinquish a right". Here, it refers to the exporter relinquishing his right to a receivable due at a future date in exchange for immediate cash payment, at an agreed discount, passing all risks and responsibilities for collecting the debt to the forfaiter.
Product features:
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Financing the seller by prepaying upto 90% of the invoice value/ Bill value
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Protection against default in payment by the buyer by arranging for insurance cover (optional)
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Collection of receivables
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Maintenance of accounts relating to accounts receivables (A/R)
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Financing the seller by prepaying upto 90% of the invoice value/ Bill value
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Protection against default in payment by the buyer by arranging for insurance cover (optional)
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Collection of receivables
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Maintenance of accounts relating to accounts receivables (A/R)
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Fairs to be organized by ITPO
Indian Trade Exhibition Port Louis (Mauritius), Feb. 1-7, 2007 Display Profile: Engineering products, Agro & Food industry, Hospitality industry, Tourism, Textiles including ready-made garments, Computer software & services, Chemical products including drugs/pharmaceuticals, Telecom Sector, Gem & Jewellery. Participation fee: Rs.6000/- per sq.mtr without shipment facility
Indian Trade Exhibition Sao Paulo (Brazil), March 6-11, 2007 Display Profile: Engineering products, Food items, Auto components, Petroleum products, Textiles including ready-made garments, Computer software & services, Chemical products including drugs/pharmaceuticals, Telecom Sector, Power generation & distribution, Gem & Jewellery, Carpets, Handicrafts & Tourism. Participation fee: Rs.14,500 per sq.mt with shipment facility and Rs.12,000 per sq.mt without shipment facility.
Indian Trade Show Melbourne (Australia), March 29-April 1, 2007 Display Profile: Engineering products, Agro & Food industry, Hospitality industry, Tourism, Textiles including ready-made garments, Handicrafts, Giftware, Computer software & services, Chemical products including drugs/pharmaceuticals, Telecom Sector, Gem & Jewellery. Participation fee: Rs.13000 per sq.mtr without shipment facility.
For more details and participation, please contact:
Ms Naseem Ishaque, General Manager, ITPO; Tel: 011-23378802/23371540 (extn.303); Fax: 011-23371869; Email: ni@itpo-online.com |
