1 / 29

A CASE STUDY Setting up a Factoring Operation in

GLOBAL TRADE FINANCE PVT. LTD, INDIA. A CASE STUDY Setting up a Factoring Operation in a Developing Economy. Veena Mankar Warsaw, Poland October 23-24, 2003.

melinda
Download Presentation

A CASE STUDY Setting up a Factoring Operation in

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. GLOBAL TRADE FINANCE PVT. LTD, INDIA A CASE STUDY Setting up a Factoring Operation in a Developing Economy Veena Mankar Warsaw, Poland October 23-24, 2003

  2. GEARING UP A NEW FACTORING OPERATION • Understanding the Market & Potential • The joint venture approach • Marketing & Product strategies

  3. UNDERSTANDING THE MARKETThe Indian Factoring Market 2000 • Factoring since 1990 • With recourse – predominantly Domestic • 2-3 players – No significant growth until 2000 • No serious international player until 1999 • Stringent regulations • Lack of credit information • Concessional Finance for Exports • Government owned export credit monopoly • LC’s are the norm for international trade

  4. General Perception THIS IS A POOR MARKET FOR FACTORING !!

  5. UNDERSTANDING THE MARKETIndicators of Potential • Significant SME sector • Exports > 55% to developed markets • Significant proportion of “Sell & Forget” products • Increased global competitiveness – Buyers market • Necessity for India to grow exports • Move from LC to open account • WTO pressure to cut export subsidies • BIS capital adequacy norms – Stringent bank credit norms

  6. Developed 64% Medium / High Risk 36% INDIA’S EXPORTS BY COUNTRIES

  7. COMPOSITION OF INDIA’S EXPORTS

  8. UNDERSTANDING THE MARKETWhy had Factoring Failed in India? • No product differentiation from Bank finance • Balance sheet approach – Collateral / With recourse • Fee / Price premium not justified with “Value add” • No clear strategic focus or market segmentation (Regional presence) • Low technology investment • Lack of product knowledge/ risks • Lack of competitive funding services • “Factoring” viewed as a negative product

  9. UNDERSTANDING THE MARKETCompetitive Banking Product -Export Bill Discounting • Concessional Export Finance to Large Priority Clients • SME – only collateralised lending • Export Finance Availability for SMEs a myth • Slow Decision Making • Export Credit Cover – Restrictive • Bill Discounting- Penal Interest for any “delay”

  10. PRE REQUISITES • Reputed parentage to counter “negative” image • International Player to bring “best practices” • Strong domestic presence for reach and early adoption • Regulatory changes - Desirable • Local market expertise – to adapt to local market • Access to Competitive Funding • Therefore : JV between – • International Bank –WestLB • Indian Financial Institution – Exim Bank Of India

  11. One of the leading providers of financial services in Germany • Total assets of more than €350 billion • World wide operating universal bank • AA+ rated by S&P and AAA by Fitch • Market leader in International forfaiting WestLB

  12. Exim Bank • India’s premier export finance institution • The bank facilitates, promotes and finances exports from India.

  13. IFC • Private investment banking arm of the world bank • World’s largest multilateral source of loan and equity financing for private investment in developing countries • India is the largest recipient of IFC’s funding

  14. VALUE OF IFC (WORLD BANK) AS AN INVESTOR • Support creation of enabling regulatory environment • “Balance” between two strong partners • Term financial support • Strengthens promoter/board confidence • Credibility for users • Small and medium sector expertise

  15. THE RIGHT BALANCE – THE JV WAY • Strategic fit of philosophies • Clear leadership with one partner • Shareholders agreement clearly spells out responsibilities • Control through board – decision making process • Executive authority – effective delegation • Risk mitigation – systems and procedures V/s Direct shareholder control

  16. PRE- INCORPORATION INPUTS • Exim Sponsored Feasibility • Product/ Pricing & Competitive Positioning Study • West LB - Risk Policy & Procedures • West LB Evaluated Technology • International Correspondent Relationship Building (FCI/ Coface)

  17. BOARD OF DIRECTORS MD of Exim Bank –Non Executive Chairman of Company Three Directors (including MD) – Nominated by WestLB AG DMD – Nominated by Exim Bank One Independent Director GTF’s board has 6 directors – of whom 2 are whole time directors

  18. DECISION MAKING & 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

  19. MARKETING STRATEGY • Product Strategy • Market Segmentation – to focus in a large market • Client profile • Value add proposition • Education

  20. PRODUCT STRATEGY • Begin with exports –factoring , forfaiting and structured deals • Target SME for regular factoring • Large Corporates – Finance for Growth/ Credit Protection • Add domestic financing products after 1 year with focus on: • Receivables & cash flow control • Existing & New Clients with global competitive ability

  21. USP- SERVICE & VALUE ADD V/s Bank Focus GTF Focus • Balance Sheet approach to lending • Deliver Limits and Price • With recourse • Historical performance • Annual Reviews • Cash Flow approach to lending • Deliver Flexibility & Service • Without / Limited recourse • Orders linked growth • Quick response on Interim Requests

  22. CLIENT PROFILE • Small / Medium / Large • Trader / Manufacturer • New / Track record • Corporate / Non corporate

  23. EDUCATION CREATE AN AWARENESS • Potential Clients • Banks • Complement not compete • Fee Source • Improved risk • Training Institutes- Potential Employees • Regulator

  24. TARGETING POTENTIAL CLIENTS • Direct • Banks/Financial Institutions • Correspondents ( Reverse Marketing) • Intermediaries NOT “LAST RESORT” BUT “PREFERRED OPTION”

  25. FINANCIAL PERFORMANCE (INR 47.50= 1 USD)

  26. OFFICES Head Office – Mumbai (Centralised Operational Activities) 3 Regional Offices ( Primarily for marketing) • Delhi • Bangalore • Chennai

  27. GTF - STRENGTHS • Strong Promoters – Positive Image • Access to Resources - Ratings – P1+/ A1+ short term • Robust Systems & Procedures – Int’l Stds • IT Driven Operations • Cost Efficient Delivery • Risk Management • Multiple Credit Protection Options • FCI • Coface • ECGC • Trained Staff – Focus on internal Training

  28. GOING FORWARD CRITICAL AREAS Portfolio Growth with Asset Quality • Technology Development • Enhance Service • Improved Risk management • Cost Reduction • Industry Lobby • Market development and education • Train – Make it an attractive career option

  29. THANK YOU

More Related