FACTORING – Int’l Trade Finance for Bangladesh

International Business Forum of Bangladesh (IBFB) organized a webinar on “FACTORING – International Trade Finance for Bangladesh” held on Monday, 31 August, 2020 via ZOOM virtual conference.

Dr. Mashiur Rahman, Economic Affairs Adviser to the Hon’ble Prime Minister, Government of the People’s Republic of Bangladesh graced the webinar as Chief Guest. Thompson Lui, Regional Manager, South and Southeast Asia, Facilitating Open Account – Receivables Finance, Factoring Chain International (FCI), The Netherlands was present as Guest of Honor.

The Keynote Paper Presenter presented by Dr. Prashanta Kumar Banerjee, Director (Research, Development & Consultancy), Bangladesh Institute of Bank Management (BIBM).

M.S. Siddiqui, Legal Economist & Vice President, International Business Forum of Bangladesh (IBFB), Helal Ahmed Chowdhury, Chairman, Economic Development Committee, IBFB & Former Supernumerary Professor, Bangladesh Institute of Bank Management (BIBM) and Syed Mahbubur Rahman, Managing Director and CEO, Mutual Trust Bank Ltd. spoke as Designated Discussants.

Mr. Humayun Rashid, President, IBFB & Managing Director & CEO, Energypac Power Generation Ltd. was the Chairperson of the webinar.

In the opening speech IBFB President, Humayun Rashid said Bangladesh Bank has issued a rule for Factoring service. All the stakeholders are discussing the rule issued by BB and it’s implication on export Trade finance and other issued such integration of global connectivity to properly use the new product of export trade finance and smooth repatriation of export proceeds. IBFB is the first trade association to organize the webinar of today and invited all stakeholders from Central Bank, Commercial Banks, some factoring service providers from other countries having their offices in Bangladesh and exporter to discuss the dynamic step of Bangladesh Bank to introduce Factoring in Bangladesh.

International trade finance has seen a growing demand in Bangladesh with rapid increase in export and import alongside other economic activities. Bangladesh has a projected export target of US$50 billion by the year 2021. While the domestic banking system has limited resources, it can tap funds from the global banking system. Interestingly, these finances do not require any security mortgage. The policymakers and regulators should amend existing trade rules and start introducing financial products that meet ever-growing demand for modern and cost-effective finance without a mortgage. These can be secured through modern banking system. In many countries, banks are in factoring business through their subsidiary companies. These factors assume the full risk of collection, including credit losses. There are two basic types of factoring: (1) discount factoring, in which the factor discounts the receivables before the maturity date, and (2) maturity factoring, in which the factor pays the client purchase price of the factored accounts at maturity.

Factors in importing country perform all servicing functions in connection with accounts receivable and deal with factors in exporting country. Because the factor takes on credit risks, it is important that the factor fully understands the terms and associated credit risk.

The Keynote Paper Presenter Dr. Prashanta Kumar Banerjee described in his presentation that percentage of open account transaction in international trade payment is around 80% of world trade. ICC survey documented shifts in market momentum towards open account terms. Especially, importers of North America, Europe and Asia are moving from L/Cs to open account settlement. In recent years, open account trade has experienced accelerated growth in Asia because exporters are facing insistence by importers that trade be conducted on open account terms. Bangladesh cannot be the exception in this regard. Like other countries, importers and exporters in Bangladesh are growingly using documentary collection and open account trade payment system for international trade payment and finance. Both banks and corporate houses face challenges like deferred payment and default risk in case of documentary collection and open account trade. Additionally banks face troubles to collect money from the importers as documents do not go through banks rather documents go to the importer directly. International factoring provides a simple solution of the above problems. In international factoring, the role of the factor/bank is to collect money owed from abroad by approaching importers in their own country. A factor can also provide exporters with 100% protection against the importer’s inability to pay. International factoring lets exporters safely offer of competitive credit terms to their foreign customers. As a result, international factoring is now a global industry with turnover around 2.4 trillion Euros having over 400 members across more than 90 countries. BIBM along with ICC Bangladesh, ADB and FCI is working on these issues since long ago. Several training programs and research works were conducted by BIBM for capacity building of bankers to launch this international financial service. Moreover, in Export Policy 2015-2018, International Factoring Services have been encouraged in financing international trade. These initiatives prompted regulator and policy makers to take actions for launching this financial service.

In this perspective, Bangladesh Bank has formed a core committee and a technical committee to check the nitty-gritty of this service. This document is the idea of these committees. It has been prepared with a view to providing policy as well as a framework of operation of international factoring for practitioners as well as for the users of international factoring

Regional Manager, South and Southeast Asia, Open Account Facilitation – Receivable Finance, Factoring Chain International (FCI), Thompson Lui said that developing countries are facing many problems at an early stage. These problems need to be solved in stages of trial and error. Since the Factoring Service is a new service, everyone should be informed about this policy.

Dr. Mashiur Rahman, Economic Adviser to the Hon’ble Prime Minister of the Government of the People’s Republic of Bangladesh, said in the webinar that mortgages are important in the traditional banking of Bangladesh but mortgages are difficult in international trade, he mentioned in his speech that if there is any weakness in the case of factoring, it will be rectified in stages. He added that organizing such a webinar on new topics like factoring is really commendable.