Bulletin. October Editorial Reviving the economy p. 3. Let s get the money moving again Economy section p. 4
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1 Bulletin October 2014 Editorial Reviving the economy p. 3 Let s get the money moving again Economy section p. 4 Insight into the economy of Bosnia and Herzegovina Interview with Irfan Samardžić p. 6»The economy needs a catalyst«interview with Igor Erker p. 10
2 Reviving the Economy Bulletin October 2014 BizOnRate ltd. 50 Seymour street W1H 7JG London, United Kingdom Company number: bizonrate.com InvoiceTrail ltd. 50 Seymour Street W1H 7JG London, United Kingdom Company number: invoicetrail.com
3 EDITORIAL 3 Reviving the economy Our economy is stagnate. The banks are not willing to take the risk in financing, where they believe a company doesn t have substantial collateral. Adversely, this results in companies with great potential for growth becoming stuck. They require funds to grow, but the only collateral they can offer the banks are their receivables. Financing based on receivables is already a standard practice in the business world. Specialized factoring services have been developed, offering the companies immediate repayment of their invoices in exchange for a particular fee. Still, this practice has not reached its full potential. A lack of control over the receivables and insufficient information available on the current liquidity status of the companies increases the risk presented by this type of financing to financial institutions. Consequently, the interest rates are too high for the companies that are already dealing with liquidity problems. Several agents, who are aware of these issues, have joined their forces in the project called Reviving the economy. Their mission is to create a new market, that will offer an advantage to the companies, as well as the banks. The main solution is based on new infrastructure and new services, to finally enable the banks to finance companies safely and efficiently.
4 4 ECONOMY SECTION Let s get the money moving again The initiators of the project»reviving the economy«are two newly founded companies BizOnRate Ltd. and InvoiceTrail Ltd. What brought them together was a shared vision helping the economy thrive once more. Their work is based on the fact that every company has open receivables. Those receivables represent a substantial part of the company s capital, but separate to the liquid assets it requires to conduct its business successfully. Therefore, economic growth could be reestablished by enabling the banks to confidently and effectively finance the companies using their receivables. Its complementary service is InvoiceTrail, the first registry of receivables on the market. It brings control and order and prevents companies from pledging or selling their receivables to multiple creditors. One receivable, one right, is our motto. We have created a unique registry, which provides financial institutions with access to detailed information about receivables the rights, debtors, creditors and payments. This way they can check the status of receivables before accepting them as collateral in a loan and make sure they are the only legitimate creditor, said Sara Zimic, the project manager of InvoiceTrail. Both of these tools lie at the heart of the new system of financing, which is gaining more and more support on the market. By activating crucial agents, the project is stimulating financial institutions to provide companies with much needed access to financing. It now seems financing companies is not as big a problem as it used to be. To solve the key problem of today s market, we devised a new internet infrastructure to enable us to receive the companies current accounting data directly from the ERP systems, rather than using the balance sheets or other financial indicators. We use the data to calculate and issue reliable information on the daily solvency of small businesses, said Tilen Oseli, the project manager of BizOnRate. By using this system, the banks can now easily estimate the risk of financing a certain company and follow on by monitoring their investment on a daily basis. InvoiceTrail REVIVING THE ECONOMY BULLETINOCTOBER 2014
5 Real estate has the Land Registry. Receivables have InvoiceTrail. The first registry of receivables, which provides you with: access to information about receivables before you decide to accept them as collateral official registration of your exclusive right to payment immediate notification about any changes or activities related to those receivables detailed analysis of the acquired receivables Learn more on our website InvoiceTrail invoicetrail.com
6 6 INTERVIEW Insight into the economy of Bosnia and Herzegovina INTERVIEW WITH IRFAN SAMARDŽIĆ Irfan Samardžić is known by his exceptional work as the finance minister of The Una-Sana Canton of the Federation of Bosnia and Herzegovina between May 2007 and February During his time in office, his goal was to establish much needed infrastructure: renovation of schools, medical institutions, sewer and water distribution systems, road rehabilitation and street lightning. His efforts significantly improved the standard of life in post-war times. What do you remember most about your time as the finance minister? The most important matter was the adoption of the act, which regulates the planning, formation, adoption and performance of the Budget and the Implementation of the Budget Act. The formation of the Budget is roughly based on the evaluation of the economic development, social sector development, microeconomic indicators and revenue and expenses forecasts. So the finance minister prepares a proposition for the Implementation of the Budget Act, which includes: First, the demonstration of all the public incomes and expenses. Second, the Budget surplus or the sources of financing for the Budget deficit. Third, the functional classification of the Budget spending Units, in accordance with the methodology prescribed by the finance minister. Public investments establish a more favourable economic ambient, where creating new value is possible and financial and economic stability is generated. And last, the income and expenses of each Budget spending Unit, in accordance with the classification (categories, subcategories and items) in the budget accounting plan. I would like to point out the importance of planning the longterm investment programs, where the capital expenditure is considered a future budgetary burden, based on dynamic time criteria. Public investments constitute an important part of the development budget, since they establish a more favourable economic ambient, where creating new value is possible and financial and economic stability is generated. This attracts foreign investors with comparative advantages (favourable investments, real estate, work force etc.). You are known as the only finance minister who, in the year 2009, managed to reduce the Budget Deficit from 53 million convertible Marks to 0. How did you achieve that? We all know that 2009 was the year of recession. Bosnia and Herzegovina established the value added tax system, the system for indirect taxation in 2007, and managed to achieve the increase of income, based on value added tax. With effective assessment of the financial shifts in the market and of the coming recession, the department REVIVING THE ECONOMY BULLETINOCTOBER 2014
7 INTERVIEW 7 took measures and prepared a plan. This reduced the expenses related to the category of fixed costs of employees, such as compensations, payroll expenses, meals, travel expenses etc., and of variable costs, such as current transfers, interests and subsidies, compensation, etc. This is how we generated savings, which were accumulated and invested in infrastructure, strengthening of local communities, reconstruction of facilities (courts, hospitals, police stations, schools) and stimulation of agriculture and production. The plan and Order of the Ministry of Finance certainly had support from legislative body of Una-Sana Canton. Why did you decide to join the project Reviving the economy? Why do you think the financial institutions will be successful at integrating with Invoice- Trail and BizOnRate? The problem arises when a substantial number of debtors is unable to pay the installments of their mortgage loans. The imbalance between supply There is a need for improvement of information systems and instruments, which would enable credible and timely reports. and demand causes the price of the real estate to drop. The investors (and the capital) withdraw because of the increased risk, so financial institutions are forced to sell their assets. The start of the crisis thus increased the probability of the insolvency of the banks. The augmented risk brought about the reduction of the amount and duration of loans. The loans became more expensive and less recurrent, which increased the operational costs of the companies and caused liquidity problems. But the most important consequence of the crisis is the loss of trust, which is never easily gained. The difficulty to acquire loans caused a drop in demand. The companies were forced to reduce their production and sales, which resulted in lower incomes. These conditions caused the bankruptcy of many companies, especially the small and medium enterprises. They were unable to fulfill their obligations towards the banks, resulting in the weaker bank balance sheets and the loss of trust. The government should intervene and direct larger amounts of money to assure the liquidity REVIVING THE ECONOMY BULLETINOCTOBER 2014
8 8 INTERVIEW of institutions and prevent the sale of real estate at low prices. This would normalize the financial movements and the price of capital and reestablish trust in the financial system. Furthermore, the government should purchase the risky mortgages from the banks and cause the reduction of supply and return of demand. It should increase the deposit guarantee and the interbank lending, which will restore the trust of all participants. There is no doubt that recomposition of the financial system, the monitoring systems and supervision are called for, after the crisis. Therefore, there is also clearly a need for improvement of information systems and instruments, that would enable credible and timely reports of the current fiscal period, in relation to the previous fiscal period. They would increase the safety of the investor and give the possibility to gain insight into the capability of the company, its current liquidity status, income, cash-flow, growth trend, receivables etc. This, in my opinion, is the advantage of the cooperation and use of the systems Invoice- Trail and BizOnrate. This advantage could ensure the successful implementation of the systems, not only in the market of Bosnia and Herzegovina, but other countries in the region as well. We heard that the former premier of the Federation of Bosnia and Herzegovina expressed an interest in joining the project Reviving the economy. In our general meeting, Mr. Nedžad Branković expressed an interest in our projects and offered his support. I appreciate his cooperation, since it provides us with a better position on the market. He is a highly professional individual and a capable economist. His expertise and knowledge as a Prime minister of the Federation of Bosnia and Herzegovina have ensured many successful acts and projects actioned. Do you think that the financial institutions in Bosnia and Herzegovina are open to the idea of providing new loans for small and medium enterprises? In Bosnia and Herzegovina, SMEs represent more than 99% of the companies, creating more Many loan facilities are already open. than 60% of the GDP and should (like in EU) become the generator of the development of national economy. Of course, they have many internal weaknesses and limitations, in terms of knowledge about new technologies, access to financial sources, power of negotiation, productivity, business skills, knowledge concerning adequate management of human resources etc. Most of the regulation and stimuli are enforced on the entity level. Financial stimuli for SMEs, in the Federation of Bosnia and Herzegovina, include non-refundable investment funds in the Ministry of Development, entrepreneurship and crafts of Federation of Bosnia and Herzegovina, in amount of 3,5 million a year for the period between , co-financing of the 25% of the loans approved by the Development bank of the Federation of Bosnia and Herzegovina and the special program for financing small, medium and large enterprises. Important financial means, in the Federation, are intended for SMEs and are placed with the help of the Foundation for sustainable development (OdRaz). The most important international institutions providing support besides the Government and its institutions, national and foreign banks, are EIB European investment bank, EBRD - European Bank for Reconstruction and Development and WB World bank. These are important funds for small, medium and large enterprises and are placed via development and commercial banks. Considering the fact that Bosnia and Herzegovina has to implement 10 key demands in the EU Charter for small enterprises, as well as many other demands that derive from the signing of multiple documents with EU in the field of entrepreneurship, and CEFTA and EFTA, changes and adaptations in technology, quality, certification, standardization and organization of SMEs are required, so that they can become competitive and can place their products on the EU market. For that reason, many loan facilities are already open. Their goal is to meet the demands of CEFTA and the development components of the companies themselves. REVIVING THE ECONOMY BULLETINOCTOBER 2014
9 Daily facts! The first dynamic rating agency, which provides you with: information about daily solvency of the companies and their business partners liquidity calculations based on issued and received invoices notifications about potentially risky business Learn more on our website bizonrate.com
10 10 INTERVIEW»The economy needs a catalyst«interview WITH IGOR ERKER The project Reviving the economy was the topic of our conversation with Igor Erker, a well known financial analyst and lead fund manager at Numerica Partners. Igor is a regular columnist and commentator of national and foreign financial media and one of the most wanted financial analysts in the region. What do you think is the main reason the banks refuse to finance SMEs? I believe there are two basic reasons: fewer new projects on the side of the companies and extraordinary conservatism on the side of the banks. Economic growth is weak and the companies have reduced their investment activities. Last year, the banks had the biggest recapitalization ever, therefore it is understandable that the bankers are afraid of their own shadow. When the economy grows stronger, there will be more interesting projects on the market and the bankers will forget the financial crisis. But for that to happen, we need a catalyst. In your opinion, what is InvoiceTrail s potential for changing the market for the better? It will systematize the receivables market and facilitate the receivable pledging, and monitoring, legal security etd. Financial intermediaries and debtors would gain a tool for effective management of pledged receivables. What about BizOnRate? Why do we need receivable ratings? Every creditor assesses the risk related to the debtor and the collateral, that has been pledged. The more up-to-date the assessment, the lower the risk for the creditor. BizOnRate provides the tool for assessing that risk in real time. Real time calculation of risk related to the debtors or their business partners is the advantage that distinguishes BizOnRate from other risk assessments. The whole world is talking about the companies need to gain access to financial means. Why do the companies need financing? Wouldn t it be possible for them to create enough working capital on their own? They could, in principle. Especially if they had good payers and wouldn t be forced to repay the debts with shorter maturity dates. Every imbalance leads to liquidity problems. And we haven t even mentioned the investment requirements. Do the banks in Slovenia have sufficient means? Yes. Billions are mostly lying on their balance sheets. The capital adequacy of Slovenian banks is very good. Then it is true that all we require is a good catalyst. What is your outlook on the role that the project Reviving the economy will play in this process? The project addresses one of the key problems Slovenian economy is facing. The problem of reigniting and restarting the financing of small and medium enterprises. The tools brought by this project enable the bankers to swim away of their unhealthy conservatism and get rid of the fear of financing companies. Additionaly, they enable the debtors to gain access to liquid assets, based on the real assessment of one or more of the most important assets of every company the receivables. REVIVING THE ECONOMY BULLETINOCTOBER 2014
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