128
FINANCIAL INCLUSION FOR FIRMS
BOX 3.6
GLOBAL FINANCIAL DEVELOPMENT REPORT 2014
Case Study: Factoring in Peru (continued)
which issued a term note that COFIDE purchased, providing $5 million in capacity for fi nancing MSEs. The vehicle used the proceeds to purchase preselected accounts receivable from Axur on a revolving basis. The transaction would extend fi nancing to approximately 1,000 MSEs, discounting invoices of $500, on average, and 21 days maturity. In subsequent transactions, the rating agencies will determine the risk of the financial instrument to be issued by the vehicle. This rating would allow the vehicle to sell participations in the financing to local institutional investors. At that time, it could cover
25,000 client MSEs, for a total funding amount of $30 million–$40 million. This factoring scheme was one of 14 winners of the G-20 SME challenge award for fi nding new ways to fi nance MSEs and received a grant to expand the scheme. The solution also attracted interest from other multilateral lending agencies. The InterAmerican Development Bank has approved a grant to expand the scheme by incorporating the portfolio of local MFIs. Colombia and Paraguay have also expressed interest in the scheme.
associated with financing at better terms than each individual bill, providing additional liquidly to the large supplier that can be passed on to the small buyers. Factoring is used in developed and developing countries around the world, but it requires an appropriate legal framework (GPFI 2011f; Klapper 2006). For instance, the law should allow firms to transfer their receivables to factors, giving factors the right to enforce payment without consent of the firm. The Legislative Guide on Secured Transactions of the United Nations Commission on International Trade Law (UNCITRAL 2010) includes detailed recommendations on how to set up a legal framework that is amenable to factoring transactions.
Leasing Another financial product that can improve access to finance among SMEs is leasing (Berger and Udell 2006). Leasing provides financing for assets, such as equipment and vehicles, rather than direct capital. Leasing institutions purchase the equipment and provide it to firms for a set amount of time. During this time, the firms make periodic payments to the leasing institution, typically covering the cost of the equipment and an
agreed rate of interest. Leasing thus focuses on the ability of firms to generate cash flows from business operations to service leasing payments, rather than on the credit history of firms or their ability to pledge collateral (Fletcher and others 2005). The ownership of the equipment is often transferred to the firms at the end of the lease period. Brown, Chavis, and Klapper (2010) show that close to 34 percent of firms in highincome countries use leasing, compared with only 6 percent in low-income countries. They also find that a strong institutional environment is associated with the greater use of leasing. Fletcher and others (2005) discuss different variations of leasing and provide a manual on leasing legislation, regulation, and supervision based on international best practices and IFC’s technical assistance experience (see also GPFI 2011f for more information on standards, guidelines, and good practices). In summary, mounting evidence indicates that movable collateral frameworks and registries, as well as credit information systems, can increase lending to SMEs. Factoring and leasing are two alternative ways of channeling financing to SMEs. Currently, there is little evidence documenting the impact of these two financial instruments on SME invest-