Supply Chain & Factoring Finance: Update, Practical Solutions & Legal Frameworks Çagatay Baydar FCI Chairman General Manager of TEB Factoring Turkey

Marketing Legal legal

Launch of Confirming in Spain CONTEXT: 90’s crisis – Spain – long payment terms. Traditional Factoring quite extensive in Spain NEED: Control as many receivables from strong and reliable debtors. Turn high-risk factoring transactions into higher quality assignments. SOLUTION: Due diligence over the receivable. Confirmation of validity and enforceability. Confirmation of payment.

The Mechanism was based on Factoring The SUPPLIER invoiced the buyer as usual. The BUYER confirmed the BANK that goods were received and invoice was good to pay. BANK offered the SUPPLIER a simple factoring transaction due to: Particular receivables vs whole turnover officially recorded and confirmed for payment by the buyer undisputable receivables 100% value /advance payment – less purchase price off-balance sheet for supplier transfer of ownership of the receivable to the BANK Covering insolvency risk of the Buyer Money collection made on a direct debit to the buyer’s bank account.

LEGAL BALANCE RECEIVABLE TRANSFER BANK limit Uncommitted offer bilateral bilateral Agreement (reverse factoring Agreement) receivables purchase agreement DEBTOR SUPPLIER BANK limit should ensure trade debits irrevocability what should be in the file payment terms conditions for stoppage payments at maturity insolvency Uncommitted offer Assignment (signee) Enforceability (legal companies) Remission 100% funds Wording to permit off-balance Approachable wording and commercial condition RECEIVABLE TRANSFER

Results of survey with FCI members: 150 Responses (40% of Members) 66% members already have some form of SCF service. 52% plan to invest in SCF platform in the coming 2 years. 76% interested in a platform developed by FCI. 68% highly interested in using FCI for KYC, Education 92% FCI should build in edifactoring for a 4-corner model 80% would like FCI to provide education on SCF.

SCF Solution Providers invited to participate

How FCI is getting involved in SCF market FCI specific 4-corner model Regular 3-corner model FCI members currently active in SCF can use the FCIreverse solution as a way to do business in more countries To meet both local regulations and KYC requirements, a 4-corner model is advised to start international SCF The EF can take different roles in this setup which needs to be decided upon by both IF and EF FCI members currently not active in offering SCF, will be able to start offering SCF domestically . This way, the FCIreverse solution can be used to gain initial experience in offering SCF There is no need for other FCI members to participate in this setup, hence a ’regular’ 3-corner model.

FCI and Demica: building the future together FCI is the global representative body for Factoring and financing of Open Account domestic and international Trade Receivables. With nearly 400 member companies in 90 countries Demica is the market leader in independent working capital solutions, offering integrated working capital solutions to banks and multinational corporates, with one team covering the spectrum of working capital products from Supply Chain Finance (Reverse Factoring) to Trade Receivable Securitisation. Both partners have a Global aspiration, aiming to provide the ultimate technology to FCI members with programs both locally and cross-border competing with global providers on the same or even a superior level. INNOVATIVE TECHNOLOGY Demica already interfaces to over 240 Enterprise Resources Planning and accounting packages, providing daily invoice level data to our partners and customers. GLOBAL Demica is currently present in more than 130 countries Globally

3-corner FCIreverse Community Agreements 1- Demica Community Membership 2- Platform Terms &Conditions Buyer Supplier FCI Member Buyer Tracking and Settlement agreement Supplier Finance Agreement Supplier Finance Agreement All parties shall become Demica Community Members, granting to use the Platform as Buyer, Supplier or FCI Member (Funder), with different benefits and duties. They shall also sign The Demica Platform Agreement (Terms & Conditions). Each party shall sign their own bilateral agreements: Buyer to allow the Platform tracking and settling invoices; Supplier to allow the platform assigning invoices to a FCI Member when accepting the advanced payment proposal; Member to allow the Platform intermediating in the funding info flows. Supplier and Funder sign through the Platform a bilateral Supplier Finance Agreement for the sale of Receivables.

FCIreverse: four corner model SCF and Supplier onboarding can be undertaken by all members of the FCI network Buyer risk is assumed by the Import Factor Suppliers can be onboarded either by the Import or Export Factor The Export Factor is indemnified against the buyer risk by FCI’s two factor system Enables regional banks to compete against big global players 4 corner model $ Buyer Supplier Export Factor Import Factor

Selected Partner of Choice: A bike analogy Pilot members should be ready to mount the saddle and ride! There is clear direction on the developments of the platform into the future The SCF provider is financially stable and can handle the rocky path ahead The financial hurdle to start using this new product, is relatively low The frame is well tested by other financial institutions and corporates The platform is operationally capable of running on any terrain in any global region For those members new to SCF, we can add the trainer wheels to get them started The system can shift in any gear, basic for starters as well as more advanced solutions

Test period and Pilot Member On-Boarding Since the signing of the Agreement on 17 May and approval by the Council on 13 June, Demica has begun final development of FCIreverse, expected to be launched in 4Q2018 FCI has 35 member companies interested in participating as a Pilot member, of which 4-5 will be on-boarded by 1Q2019 Those not selected will be considered priority and on-boarded after the text period once the platform goes live. Interest shown by the development banks, including IFC, Asia Development Bank, EBRD, Islamic Development Bank/ITFC, and AfreximBank

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