1. AGENDA KIEV/UKRAINE, 5TH AND 6TH OCTOBER 2017
MARGRITH LUTSCHG-EMMENEGGER

2. THE ROLE OF FORFAITING AND FACTORING IN TRADE FINANCE
AGENDA
THE ROLE OF FORFAITING AND FACTORING IN TRADE FINANCE
UNDERSTAND THE BASICS
LOOK AT BENEFITS AND DEVELOPMENTS
CHALLENGES
OPPORTUNITIES

3. WHAT IS GOING ON ? Strong competition environment
Supplier sources – easy traceable
Buyer market – buyers dictate the terms
Better payment terms – increasing demand
Global trading environment
SME’s drive the economies but have little access to funding
L/Cs no longer accepted by majority of buyers
Open accounts terms requested by majority of buyers
Sellers need to…
Replace the L/Cs
Offer competitive open account terms
Manage the risk of their buyers
Find appropriate financing – cash flow & business growth

4. WHY TRADE FINANCE ? Indispensable banking product
(lifeblood of all open economies)
Resilient by its very nature
(trade will never stop)
Favorable growth prospects
(world trade growth outstrips world GDP growth) 4 4

5. New Markets, New Products, New Clients
WHY TRADE FINANCE – FACTORING AND FORFAITING ?
Door Opener to
New Markets, New Products, New Clients 5

6. Global trade moves towards open account
GLOBAL SHIFT TO OPEN ACCOUNT TRADE FINANCE
Revenue pools increase by 80% until 2020
Global trade moves towards open account
Revenue pools (Bn USD)
Global imports (Trn USD)
Open Accounts Strong Growth
Strong trade growth
Importers favor O/A
Penetration of financing instruments for O/A will slightly increase
Spreads will rise slightly as environment in emerging markets is more risky
Doc. Trade Slow Growth
Decline in volume, compensated by increase in L/C fees due to more risky environment
Payments Growth in line with global trade

7. THE CASE FOR FORFAITING
Definition:
Forfaiting is the buy/ sell on “Without Recourse” basis of international trade receivables materialized in negotiable instruments (e.g. P/Ns, B/Es, …).

8. Negotiable Instruments:
FORFAITING – THE BASICS
History
East-West Trade
Child of the Cold War
Markets
Primary
Secondary
Centers
London, Zurich,
New York, Singapore,
Gulf Region
Characteristics:
Tenors from 6 months to 10 years;
Amounts of min US$100,000;
All major currencies;
Non recourse to seller/ endorser;
Negotiable instruments;
Usually guaranteed by a financial or sovereign institution
Negotiable Instruments:
Letter of Credit;
Promissory Note;
Accepted Bill of Exchange;
Receivables Book with separate Guarantee
Financial Lease installments with Guarantee 8

9. Finances 100% of the contract value
FORFAITING – BENEFITS
Finances 100% of the contract value
Enables Exporter to offer credit terms
Sale is made on a without recourse basis
Financing is off balance sheet
Simple & Concise Documentation
Quick Decisions
Improves Cash Flow
Services, Foreign and Local works can be financed

10. Portfolio/Funding Constraints Risk Mitigation Limit Constraints
FORFAITING – BENEFITS – A PRODUCT THAT CAN BE TRADED/DISTRIBUTED
Why Trade ?
Portfolio/Funding Constraints
Risk Mitigation
Limit Constraints
Higher Returns on Equity
More Business Opportunities with Limited Resources
Assists with accurate pricing for new deals
Offers greater risk capacity to clients
Increase the International profile of the Group 10

11. THE CASE FOR FACTORING
A CASE FOR FACTORING –
Definition:
Factoring is a form of Receivable Purchase, in which sellers of goods and services sell their receivables (represented by outstanding invoices) at a discount to a finance provider (commonly known as the “factor” – can be a bank or a finance institutions)

12. ELIGIBILITY CRITERIA Open account sales Continuing relationship
FACTORING – What is it ?
ELIGIBILITY CRITERIA
Open account sales
Continuing relationship
Assignment of whole turnover
Assignable receivables [no legal constraints, no ownership of the goods, seller is only distribution agent]
Clear sales title
Clear/Clean performance [no sale or return, no consignment, no counter sales, no performance claims]
Good spread of Buyers

13. TYPES OF FACTORING Main types Main variations
FACTORING – What is it ?
TYPES OF FACTORING
Main types
Domestic factoring [inland sales, “with and without recourse”]
Export factoring [export sales, “credit protection”]
Import factoring [credit management, collection management]
Main variations
Reverse factoring [approach from debtors]
Channel factoring [structured as back-to-back]
Reverse marketing [use the expertise of Import Factors]

14. HOW DO THEY COMPARE ? Factoring Credit insurance
HOW DOES IT COMPARE ?
Factoring
Credit insurance
100% credit protection
First loss to insured
Financing cash flow
Risk cover only
With and without recourse
Pay out on satisfaction
Guarantee payment by fixed date
Claims processing procedure

15. HOW DO THE COMPARE ? HOW DOES IT COMPARE ? HOW DOES IT COMPARE ? [3]
Always with recourse
Limited recourse
Mainly financing
Value added – Risk mgmt
Limits linked to Security
Growth linked to liquidity
Price effective for good B/S
Value proposition for SMEs
Security & Collateral driven
Cash flow & Portfolio driven
Financial risk
Performance & Debtor payment risk
Pre/Post-shipment
Post-shipment
Bank finance
Factoring

16. HOW DO THEY COMPARE ? HOW DOES IT COMPARE ? [3] Factoring: Forfaiting:
On-going arrangement
Non-negotiable instruments
Open account sale
Provides other than financing services
Used for offering short-term credit to regular buyers
Both with and without recourse
For domestic and export receivables
No minimum size
A percentage is normally retained
HOW DOES IT COMPARE ? [3]
Forfaiting:
Single transaction based
Negotiable instruments
L/C or bank acceptances required
Primarily a financing service
Medium/Long term transaction which would be ‘one-off’
Without recourse
Usually for export receivables
Minimum transaction size: US$100,000
100% financing

17. FOCUS IS ON THE RECEIVABLE
WHAT THEY HAVE IN COMMON
FOCUS IS ON THE RECEIVABLE 17

18. THE TARGET IS …………………… THE SUPPLY CHAIN

19. A PROMISING OUTLOOK FOR THE EXPANSION OF SUPPLY CHAIN FINANCING
Supply Chain Finance (SCF) has progressed impressively over the past years. The slow growth in many financial markets and the credit crunch has made working capital optimization a necessity. Businesses are focused on improving liquidity management and expansion of funding sources, with markets both mature and emerging embracing it.

20. POTENTIAL – needed solutions for lingering challenges
SCF FOR EMERGING MARKETS, PROMISING MARKET, SLOW PACE GROWTH
POTENTIAL – needed solutions for lingering challenges
Emerging Markets engagement in global trade continues to grow and projected to remain positive
Open account trade trends remain positive and growing away from traditional products
Dynamic change in macro-economic landscape and diversification agendas across keep focus on liquidity
Markets are SME concentrated and fostering their stability is sustainable for growth
Business and conglomerates under more pressure to innovate amid rising global competitive forces

21. BOTTLENECK – limited knowledge and slow paced adoption
SCF FOR EMERGING MARKETS, PROMISING MARKET, SLOW PACE GROWTH
BOTTLENECK – limited knowledge and slow paced adoption
Although SCF is starting to be explored with foreign suppliers, it remains in infancy inter-regionally
Reliance on paper-based trade remains heavy with reluctance to explore new methodologies
Adaptation to new concepts and innovative concepts if very low, change management is essential
SME’s are more keen to explore benefits opposed to Corporates that are still living in growth days psychology
Corporates in the region are unconscious of the value in supporting sustainability and competitiveness through added value to suppliers and the need for a strong supply chain

22. BLOCKCHAIN INVOICE CHECKING EXIMCOIN NEW DEVELOPMENTS
Has the power to create new business models and make a great many things more secure, accountable and efficient especially in financial services
INVOICE CHECKING
A new tool being developed by Trade Finance Market to avoid double financing
It requires many institutions to contribute – the more contribute the more efficient and effective
EXIMCOIN
More an investor tool but will eventually also benefit the SME trade finance business as it will be easier for investors to participate in trade finance transactions -

23. COMMON ISSUES IN EMERGING MARKETS
Laws
&
Legislation
Are Non-Banking Financial Institutions regulated?
Are assignments enforceable?
Are assignments publicly registered?
Does assignment need to be accepted by debtors?
Are credit and/or payment instruments commonly accepted and/or traded in the market (e.g. Promissory Notes, Post Dated Cheques, …)?
General environment
How available is information on companies?
How reliable are the resources ?
Other aspects – community and structure of environment?
Is insurance available ?
What products of the Factoring products do you intend to offer?

24. CRITICAL SUCCESS FACTORS
TECHNOLOGY, BUSINESS CASE AND ORGANIZATION BUY-IN ARE THE ESSSENCE FOR SUCCESS
CRITICAL SUCCESS FACTORS
The utilized technology platform
Supplier appetite for liquidity and participating in SCF programs
Positive business case and especially for buyers, commercial terms for suppliers
Onboarding process for suppliers
Smooth and effective implementation and operational progress
Change management and organizational acceptance

25. NEW PRODUCT LAUNCH CHALLENGES
IT resources
Define requirements
Limited knowledge among clients
Knowhow availability
Limited knowledge among staff
Risk awareness
Regulatory requirements
Operational flows
Compliance implications
Return on investment

26. “White Label” Approach
NEW PRODUCT LAUNCH CHALLENGES FOR FACTORING – POTENTIAL SOLUTIONS
The Challenge
Bank seeks to introduce Factoring Services to their market/s
Product knowledge is limited locally
Technology & Business Processes are critical
Standard
Innovate
The Standard Approach
Buy the expertise – typically international hires and/or advisory services
Team hire and know how transfer
Purchase & Implement the IT Platform
“White Label” Approach
Partner with a specialist service provider for technology & Business Process Outsourcing
More details about this offering is available upon request

27. In the end it will benefit all of us !
CONCLUSION
Emerging Markets (not only BRIC’s)
Need access to new products;
Are increasingly the drivers of the global economy;
Offer huge potential to the developed countries if Factoring (supported by other products) is introduced and applied into the Emerging Markets too;
Developing the Emerging Markets in this Region will require:
Education efforts ;
Hard work with Governments and Authorities ;
Commitment to investments which will not show immediate results, i.e. profits ;
The Emerging Market countries are now outperforming developed countries with regard to growth in trade and GDP:
To sustain our growth in the Developed Countries we need these countries to safely apply the factoring products;
It is not a “donation” but in the best interest of all stakeholders in order to grow the product andbusiness introduced and applied;
Why should we bother ?
In the end it will benefit all of us !

28. financial instruments for investors.
QUESTION AND ANSWERS
THANK YOU
Tawreeq Holdings Limited, a holding and management company, with subsidiaries in
the UAE and Luxembourg specialises in comprehensive Supply Chain Finance (SCF)
solutions for Small and Medium-sized Enterprises (SMEs) and their corporate clients
across the MENA region. These solutions are made available through, but not
limited to, the world’s first comprehensive Sharia-compliant SCF technology-enabled
solutions to support SMEs and corporates, while offering alternative Islamic
financial instruments for investors.