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Yet,whileitmaynotreceive alltheattentionothertrade financeproductsdo,itis equallyimportant
AccordingtoFCI'sreport releasedon21May2024, theworldfactoring industrydemonstratedrobust resilienceandgrowthin2023, withanotable36%increase involumecomparedto2022, bringingthetotalto €3,791billion.
Thisfollowstwoconsecutive yearsofdouble-digit growth,markingareturn topre-pandemicstability
Overthepasttwodecades, factoringhasshown remarkablestrength,with acompoundedannual growthrateof83%
Thishighlightsitscritical roleinsupportingSMEsand corporatesbyproviding
liquidity,protectingagainst customerbankruptcies,and offeringglobalcollection support
WhileEuroperemainsthe largestcontributor,accounting forapproximately68%ofthe globalvolume,emerging marketsinregionslikeAsiaPacific,theAmericas,andAfrica areshowingsignificantgrowth, presentingvastopportunities forexpansion.
growthoffactoringandsupply chainfinanceinMENAandIndia
efcom:Turbochargingthe
Factoringisoftenunderappreciated. www.tradefinanceglobal.com 4 Figure1:EvolutionofGlobalFactoringVolume(inEurobillions) Source:FCI 4000 3500 3000 2500 2000 1500 1000 500 DomesticFactoringVolume 1995 2004 2013 1998 2007 2016 2001 2010 2019 1996 2005 2014 1999 2008 2017 2002 2011 2020 2022 1997 2006 2015 2000 2009 2018 2003 2012 2021 2023 InternationalFactoringVolume GlobalFactoringVolume
Tolearnmoreaboutthefactoringmarket,includingimportantgrowthregions,and Islamicfinance,TradeFinanceGlobal(TFG)spokewithFedericoAvellánBorgmeyer, ChiefPartnerOfficeratefcom,AbdelrahmanElbeltagy,IslamicFactoringspecialistat efcom,andVikramNair,CEOofXilligence
DeepeshPatel EditorialDirector TradeFinanceGlobal(TFG)
AbdelrahmanElbeltagy ChiefPartnerOfficer efcom CEO Xilligence IslamicFactoringspecialist efcom
FedericoAvellánBorgmeyer
VikramNair
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Factoring’s countercyclical importancefor tradefinance
Factoringinvolvesselling receivablesatadiscount toathirdparty,providing immediatecashflowto businesses.
Thisfinancialtoolisessential formanysmallandmedium enterprises(SMEs)thatmight otherwisestruggletosecure traditionalbankloans Factoringalsotendstogrow countercyclically.
AvellánBorgmeyersaid, “Factoringorresidualfinance hasalwaysgrownwellwhenthe marketsareuncertain,andwe havealotofthisrightnow”
Duringeconomicdownturns, businessesoftenfaceextended paymenttermsfromtheir buyers,increasingtheneedfor immediatecashflowsolutions
Factoringensurescompanies cancontinuetooperate smoothlyevenwhenthe broadereconomicenvironment isunstable,makingit indispensableforSMEsin emergingeconomies
TradeFinanceTalks
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Strategicfocuson emergingmarkets, andthevalueof partnership
WhileEuroperemainsa dominantplayerintheglobal factoringmarket,contributing toapproximately70%ofthe totalvolume,thefocusis graduallyshiftingtowards emergingmarkets.
German-basedcompany efcom,operatinginemerging marketsworldwide,isuniquely positionedtoobserve thesechanges.
Importantly,implementing factoringstrategiesintonew marketslikeIndiaorMENA requiresengaging withpartners.
VikramNair,CEOofExilligence, said,"Thereasonwhywe partneredwithefcomwas because[theyare]aclear industryleaderinthefactoring spacewiththeirsoftwareand solutions.Givenourpresence andexperienceinIndiaandin theMiddleEast,GCCcountries, wethoughtthattherewouldbe aseamlessfit"
AvellánBorgmeyeradded, “Whenwelookintomarketslike theIndianmarket,forinstance, ahugeanddynamicmarket, wedon'tsaythatefcomis goingtodoitalone,welookfor partnerslikeXilligence,andwe trytogrowthemarket together.”
Thisstrategicpivot,using partnerstohelpenteremerging markets,isdrivenbythe maturityofEuropeanmarkets, wherefactoringpenetration
hasreachedsignificantlevels. Forinstance,Germanyhas achievedafactoringvolume of10%ofitsGDP Incontrast, manyemergingmarketsstill exhibitlowpenetrationrates, presentingvastgrowth opportunities.
TheifXproduct,byefcom, isdesignedtoaddress thegrowingdemandfor Shariah-compliantservices
Withitsworkflowandrisk managementcapabilities, thecloud-basedsolutionoffers highsecurity,modularity, andscalability
Alignedwithinternational Islamicaccountingstandards, ifXensurescompliancewhile providingahighlevelof automationandreal-time interactivity
Macrotrendsinglobaltradeandworkingcapital
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AvellánBorgmeyersaid, “Ifyoutakeanycountry outsideEurope,likeIndia, Africannations,ortheGulf region,theyallmoveinavery lowsingledigitrange.
Webelievethatwithinthenext 10years,alltheseeconomies willseeasteeprisein development”
Currently,theAfricancontinent onlyaccountsfor1.2%ofglobal volume,andtheMiddleEast accountsforjust0.3%ofthe market
Theattractiontotheseregions isnotjustaboutuntapped potential;itisalsoaboutthe intrinsiccharacteristicsof factoringthatalignwellwith theneedsofemergingmarkets
Factoringprovidesimmediate workingcapital,crucialfor businessesindeveloping economieswhereaccess totraditionalfinanceisoften limited.
Moreover,theemphasison risk-sharingandtheethical considerationsembeddedin certaintypesoffactoring,such asIslamicfactoring,resonates wellwiththeseregions'cultural andeconomiccontexts
Theonlineplatform, efcom'sefOnline,enhances theinteractionbetween factorsandclients
Thisweb-based applicationprovidesarealtimedashboard,livedata reports,andcomprehensive debtorandinvoiceoverviews
Clientscanrequestlimits, reportdirectpayments, andmanageoutpayments autonomously,reducingthe workloadonfactoringstaff andincreasingoperational efficiency.
DMS RISK Report state banks Accounting system TradeCredit Insurance Server/ Cloud Post (emailfax) Mobile Desktop FCI
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Adoptionand development ofIslamic factoring
Islamicfinance,governed bySharialaw,prohibitsthe chargingofinterestand emphasisesrisk-sharing, asset-backedtransactions, andethicalinvestments
Theseprinciplesformthe foundationofIslamicfactoring, anicheyetrapidlygrowing segmentwithinthebroader tradefinanceindustry
efcom’sproduct,ifX,exemplifies theseprinciplesbyoffering aShariah-compliant factoringsolution.
ifXcoverstheWakalahBi-Al Istithmarcontractandis designedforseamless integrationthrough numerousstandardAPIs.
Theproduct’scloud-based natureensuresaccessibility fromanywhere,enhancingits appealtofinancialinstitutions intheMEAandAPACregions
WhatisShariahfinance?
Shariahfinance,governedbyIslamiclaw,isafinancial systemthatadherestoprinciplespromotingethical, interest-free,andrisk-sharingtransactions.
Unlikeconventionalfinance,Shariahfinanceprohibits thechargingorpayingofinterest(riba)andemphasises asset-backedfinancing,profit-and-losssharing,and investmentsinsociallyresponsibleandeconomically productiveactivities
InShariahfinance,transactionsmustinvolvetangible assetsorservices,ensuringthatfinancialactivitiesare rootedinrealeconomicvalue
Thissystemalsoprohibitsspeculativebehaviourand investmentsinindustriesconsideredharmfulorunethical, suchasgambling,alcohol,andtobacco.
KeyprinciplesofShariahfinanceinclude:
Risk-sharing:Bothpartiesinafinancialtransaction sharetherisksandrewards,fosteringafair distributionofprofitsandlosses
Asset-backing:Transactionsmustbebackedby physicalassetsorservices,promotingstabilityand securityinfinancialdealings
Ethicalinvestments:Investmentsmustalignwith ethicalandsociallyresponsiblevalues,avoiding activitiesdeemedharmfultosociety
Byadheringtotheseprinciples,Shariahfinanceaimsto createamoreequitableandstablefinancialsystemthat supportssustainableeconomicgrowthandsocialwelfare Thisapproachisparticularlyrelevantinthecontextof factoring,asitprovidesacompliant,ethicalalternativefor businessesinMuslim-majorityregionsandbeyond.
Addressingthe$25trilliontradefinancegap
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Elbeltagysaid,“Ifyoulookat Islamicfinance,youfindthatit's amoreethicalwayoffinancing thataimsformoreproductive financialactivitiesasitfocuses onrealeconomicactivities thatcauseeconomicgrowth.”
Givenitsasset-backednature, factoringisparticularlywell suitedforadaptationto complywithSharialaw
Thisadaptationinvolves structuringtransactionsto ensuretheydonotinvolve interestandadheretorisksharingandasset-backing requirements
ThepotentialforIslamic factoringissignificant,given
theeconomicgrowthand increasingsophisticationof financialmarketsintheGulf CooperationCouncil(GCC) andotherMuslim-majority regionsliketheMiddleEast andNorthAfrica(MENA)region.
AvellánBorgmeyersaid, “Today,mostofthefinance doneinIslamiccountriesisstill intheWesternstyle,butthere isagrowingtendencytowards Islamicfinance.Inthatrespect, thereisabigopportunity toprovideaproductthat isappealingtotheregion”
ImplementingIslamicfactoring involvesadaptingexisting technologiesandworkflows tomeetShariarequirements.
Thisprocessincludes developingnewsoftware solutionsormodifyingexisting onestoaccommodatethe uniqueaspectsofIslamic finance.
Thegoalistocreateflexible, scalable,andcompliant productstailoredtothe specificneedsofdifferent clientsandmarkets
ByofferingSharia-compliant options,financialinstitutions tapintoagrowingmarket andcontributetotheoverall developmentandstability ofthefinancialsystemin theseregions.
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Theincreasingrecognitionoffactoring’simportanceintradefinance, thestrategicfocusonemergingmarkets,andthedevelopmentof Islamicfactoringallpointtoadynamicandevolvinglandscape.
Asbusinessesworldwidenavigateeconomicuncertainties,factoring willplayanincreasinglyvitalroleinensuringfinancialstabilityand fosteringinternationaltrade.
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MeettheExperts
FedericoAvellánBorgmeyer ChiefPartnerOfficer efcom
Withnearly30yearsbankingtechnologyexperience, ie transactionandpaymentprocessing,creditcard personalization,paymentandothertransactionterminals, ArtificialIntelligenceapplicationsinfinance,cryptography, DistributedLedgerTechnologyandfactoringsolutionsin different“C”positionsinBusinessPlanning,Finance,M&A,R&D, Marketing&Sales,OperationsandAfter-SaleswithWorldCard International,DataCardCorporation,Gemplus/Gemalto, FidelioNetworks,FirstDataCorporation,PostbankPOSTransact, Tech4FinDeutschlandandFactoringBlockchainSolutions, Federicoisthestrategicarchitectandnowexecuterfor efcom'snewglobalmarketing&salesapproach.
AbdelrahmanElbeltagy
IslamicFactoringspecialist efcom
Thoughyounginage,AbdelrahmanEl-Beltagyhasbeen breathingIslamicFinanceforhisentirelife.BorninRiyadh andgrowingupinCairoinafamilyofIslamicFinance scholars,heisnowafinanceandinvestmentstudentat CairoUniversity Duringhisyoungprofessionallife,hehas hadstationsatContactFinancialHolding,FirstAbuDhabi BankEgyptandisnowamemberofefcom’sefCommunity withfocusonIslamicFactoring
R
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mhas25yearsofexperienceworking Tcompaniesinleadership,strategyand ctdesignrolesinNorthAmericaandinIndia -foundedXilligenceaswellasmultiplestart-ups elievesintheabilityoftechnologytopositively cttheworld.HeholdsaB.ScinMathematics heUniversityofManitoba
eepeshPatel
ditorialDirector adeFinanceGlobal(TFG)
eepeshPatelisEditorialDirectoratTradeFinanceGlobal FG).Inthisrole,DeepeshleadseffortsindevelopingTFG’s rand,relationshipsandstrategicdirectioninkeymarkets, cludingtheUK,US,Singapore,DubaiandHongKong. eepeshregularlychairsandspeaksatinternational dustryeventswiththeWTO,BCR,Excred,TXF, heEconomistandReuters,aswellasindustry ssociationsincludingICC,FCI,ITFA,ICISAandBAFT
R
amNair nce
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TradeFinanceGlobal(TFG)istheleadingB2Bfintechintradefinance.
TFG’sdata-ledoriginationplatformconnectscompanieswithinnovative tradeandreceivablesfinancesolutionsfromover300financialinstitutions.
Weassistspecialistcompaniestoscaletheirtradevolumes,bymatching themwithappropriatefinancingstructures–basedongeographies, products,sectorandtradecycles.Contactustofindoutmore.
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Attractingaround160kmonthlyreaders,ourpublications haveaglobalaudiencein187countries.
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TFGarestrategicmediapartnersfortradeconferenceproviders aroundtheworld.
TFGalsohoststheInternationalTradeProfessionalsProgrammewithLIBF, andfundstheAccelerateScholarship,agranttohelpstudentstopursue acareerintrade.OthersknowusthroughourAnnualInternationalTrade Awards,celebratingoutstandingplayersandcontributorsinthetrade ecosystem
Throughtheseactivities,TFGisdemocratisingtradefinance.
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