BUILDING FACTORING BUSINESS PLATFORM PRESENTED BY

BUILDING FACTORING BUSINESS PLATFORM PRESENTED BY BLEND FINANCIAL SERVICES LIMITED AT WORKSHOP ON ACHIEVING SUCCESS THROUGH FACTORING ORGANIZED BY AFRICAN EXPORT IMPORT BANK (AFREXIMBANK) ON 2 ND, DECEMBER, 2011 AT ACCRA, GHANA

AGENDA 1 2 BLEND: AN OVERVIEW FACTORING: INDIA EXPERIENCE 3 4 FACTORING: AFRICA OVERVIEW BLEND : OFFERING

BLEND FINANCIAL SERVICES LIMITED AN OVERVIEW

BLEND OVERVIEW Market Position People Global presence Customer Relationship India based fast growing Corporate Advisory company offering wide range of financial services Strong Management team, 130 strong professionals supported by team of experts in Banking, Factoring & Financial services Pan India network with International presence in Dubai, Hong Kong, Sri Lanka, USA and UK Strong clientele globally with cumulative mandates of USD 2.42 billion Strong banking and corporate network in India and Internationally 4

GROWTH BLEND : BUSINESS MODEL Promoter funding/ Foreign Subsidiary funding Mergers & Acquisitions/LBO FCCB/Private Placement Debt Syndication Angel Funding Working Capital & Structured Products Venture Capital Initial Public Offer Private Equity Mezzanine Capital Expert Advisory in Factoring Debt Syndication Investment Banking Allied services/advisory in Banking & Financial Services MANAGEMENT CONSULTANCY SERVICES Seed Startup Growth Expansion Established MSME focused financial advisory company poised to offer 360 degree financial solutions. Exit 5

JOINT VENTURE FACTORING India Factoring and Finance Solutions Pvt. Ltd (IFFSPL) Punjab National Bank FIM Bank Banca IFIS IFFSPL Facilitating trade through factoring and related financial services in trade Finance. Blend Financial Services Limited Blend has catalyzed the globalization of factoring services in India by bringing PNB, FIM BANK and BANCA IFIS together to facilitate trade promotion through factoring 6

JOINT VENTURE ROLES FIM Bank- Credit institution having specialization in International trade finance & Factoring. Focused on developing Markets and to expand its foot print in India. To provide technical support and assistance to the company. Punjab National Bank- 2 nd largest Public Sector Bank in India with Business of USD 113616 million. Foray into new business. Acts as Strategic Investor. Gives its Brand to the JV company. To Provide line of credits. India Factoring and Finance Solutions Private Limited (IFFSPL) Banca IFIS (Strategic Partner)- Italy based bank having expertise in factoring and trade finance business Blend Financial Services: A leading financial services company with expertise in Factoring and allied activities Brings Global expertise of factoring business. Brings new factoring and leasing products. Marketing partner. New product development. 7

CERTIFICATES & ASSOCIATIONS Blend Certified with Quality Management System MOC with Afreximbank Member of International Network of SMEs Member of International Factors Group Extending support to the SME Sector in the continent of Africa. Signifying its linkage with Global SME support organizations IFG is the first international association of factoring companies. Blend is among the few Financial Services Company to avail ISO 9001:2008 Certification. Blend and Afreximbank agree to cooperate in developing and promoting trade services between India and Africa The network comprises at present 80 members based in 32 countries in 5 continents IFG helps factoring companies to conduct cross-border business acting as correspondents for each other 8

FACTORING : BLEND S EXPERTISE In factoring business for past 12 years; in depth understanding of all challenges of the business & product SME centric organization and understands SME funding requirement and issue Expert team with complete knowledge of factoring business/ product and business processes. Instrumental in setting up India Factoring, in 12 months time has factoring turnover of approx USD 250 million with zero NPA Understanding of SME Technical Knowhow & product capability Proven Track record With the experience and expertise gained in India and with the intermediation of relevant institutions, Blend can play a pivotal role in developing factoring product in Africa Resource management ability to assist raising funds through innovative structures Knowledge of challenges of product and business and its mitigate Wide structuring ability for each transaction. Have developed unique industry specific product. 9

FACTORING INDIA EXPERIENCE

FACTORING INDIA SCENARIO India - 2010-11 Number of Factoring companies: 11 Domestic Factoring Turnover (in Millions of EUR): 2,600.00 International Factoring Turnover (in Millions of EUR): 150.00 Total Factoring Turnover (in Millions of EUR): 2,750.00 Source Factor Chain International Started in 1991 with SBI factors Grew by over 800% from 1998 to 2003 Between 2003 to 2006 grew by 120% Slowdown had a large effect on the product and turnover became half vis-à-vis 2008 in 2009 85% of the market share of SBI Global Factors Turnover Growth from 2009 mere 4% in 2010 11

FACTORING INDIA SCENARIO Till date limited nos. of players engaged in factoring activity. In 2010, factoring turnover reached Euro 2750 million, which constitutes roughly 0.40% of India s GDP. Factoring turnover in India is approx. 0.048% of the total Bank credit. Factoring turnover in India is mere 0.17% of the World Factoring turnover and 0.77% of total Asia turnover. Products offered by factoring companies constitutes Domestics, International, disclosed, undisclosed. Currently facility offered are with recourse factoring due to ban on credit insurance. International Factoring still to gain momentum and factoring volume constitutes 95% of domestic factoring. Majority of the factoring business in India is controlled by top 3-4 major players. Source: Reserve Bank database/factor Chain International 6000 5000 4000 3000 2000 1000 0 Factoring Volume - India Million 5200 5055 3560 2650 2750 1990 1625 2004 2005 2006 2007 2008 2009 2010 12

FACTORING INDIA SCENARIO CHALLENGES Absence of Regulatory framework. High stamp duty on factoring transaction. Lack of supportive legal framework uneven playing ground with Banking system. Mitigated once Regulation of Factor (Assignment of Receivables) Bill, 2011 is enforced Competition from Commercial Bank. Access to information on credit worthiness. Improved since establishment of CIBIL; Reserve Bank of India has already given approval to 3 new players Challenges are similar in African Market & the story can be build taking cue from Indian experience 13

FACTORING INDIA SCENARIO FACTORING BILL For any factoring business to grow, there has to have robust legal and regulatory framework. With the advent of The Regulation of Factor (Assignment of Receivables) Bill, 2011, the same will get addressed giving way to development of Factoring in India and allowing International Factors to set up shops. What we are going to achieve with The Regulation of Factor (Assignment of Receivables) Bill, 2011 Registration of NBFCs as a Factor with Reserve Bank of India (RBI) and RBI to regulate the Factoring Companies. Clarity on the Rights and Obligations of parties to the contract for Assignment of Receivables and setup of Central Registry for registration of assignments. Linkage with MSME Act, 2006 which will give better market coverage to the Factor. Central Registry to be set up under section 20 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to give right to the Factor(Assignee) on specific Assignment. Amendment in Civil Procedure Code, 1908 to extend the law relating to recovery of Debt to dues under a Factoring Arrangement. Amendment in The Credit Information Companies (Regulation ) Act, 2005, bringing disclosure with regards to recovery of Assigned Receivables. 13

FACTORING EMERGING BUSINESS OPPORTUNITY Trade finance to drive the global economies for years to come. Emerging economies will consolidate their position as the ultimate provider of commodities, food and fuel to the rest of the world. Emerging economies are enhancing their political economic influence in the world. International trade is shifting towards open account terms supply chain financing and innovative trade finance to replace L/Cs. Factoring critical for trade finance global economy. SMEs in emerging markets are important for driving global economy. Factoring becoming a mainstream product and getting wide acceptability. Liquidity crunch and factoring (boutique of services). Rewarding for all stakeholder, i.e. institutions, investors, the product and economy. 15

FACTORING BENEFITS TO SME 16 Source: A Study on Factoring by SIDBI

FACTORING AFRICA OVERVIEW

FACTORING - AFRICA Factoring Companies in AFRICA Africa Number of Factoring companies Domestic Factoring Turnover (in Millions of EUR) International Factoring Turnover (in Millions of EUR) Total Factoring Turnover (in Millions of EUR) Egypt 5 50 150 200 Mauritius 2 122 3 125 Morocoo 4 905 166 1,071 South Africa 5 14,895 225 15,120 Tunisia 4 260 35 295 Major Factoring Companies - AFRICA Egypt 1. Egypt Factors S.A.E. 2. Export Credit Guarantee Company of Egypt Mauritius 1. MCB Factors Ltd 2. Mauritanie Leasing Source : Factors-chain international Morocoo 1. Attijari Factoring Maroc. 2. Banque Marocaine pour le Commerce et l'industrie 3. Maroc Factoring South Africa 1. Nedbank Corporate 2. Standard Bank Debtor Finance Tunisia 1. UNION DE FACTORING (UNIFACTOR) 2. Tunisie Factoring SA 18

20 NEED TO ESTABLISH MORE FACTORING COMPANIES Factoring Companies currently present in Africa With the experience and expertise gained in India, Blend can play a pivotal role in development of factoring in Africa by way of assisting existing companies developing sound systems and establishing new companies/divisions (with a Financial Institution) on Turnkey Basis. 19 Source: Factor Chain International

BLEND: OFFERING

23 THE THOUGHT OF STARTING A FACTORING COMPANY WHO SHOULD GO FOR FACTORING? HOW TO PREPARE A FEASIBLE BUSINESS PLAN? WHAT SHOULD BE THE CAPITAL OUTLAY? HOW TO IMPLEMENT THE BUSINESS PLAN? WHEN TO START THE BUSINESS? DEMOGRAPHIC VS DOABLE BUSINESS 21

23 FACTORING ADVISORY START UPS Blend proposes to take up projects for establishing Factoring Business Platform on turnkey basis Setting up the business process Establishment of policy guidelines and standard operating procdures IT Factoring Management System Finance Periodic Audits and system enhacements Credit & risk management process. Operations (Collection & Debt Management) Sales & Marketing Resource mobilization structres Handover to pre trained team Training of staff Implementation of pre sanction process Simulations & Trial Runs System control audits 22

23 FACTORING ADVISORY EXISTING COMPANIES Advisory to existing factoring companies New product development. Assistance in building Credit, risk monitoring and scoring systems. Risk management & mitigation, fraud prevention systems and processes. Assistance on building sound IT interface to suit factoring. Assistance on Innovative resource mobilization structure (depending upon strength of the principal and economic environment of the country). Credit Insurance advisory and liaising to facilitate down selling of portfolio. 23

SUCCESSFUL FACTORING STARTUP KEY ELEMENTS AT THE START Thorough understanding of economic condition/environment of the country a. Regulatory environment, development of financial system, legal system support. Understanding of existing factoring setup/environment a. Analysis of existing factors and their business b. Liaise with the association, if any present in the country Choosing the right team to prepare the plan which is profitable for the investors/stakeholders Elements of successful startup a. Local business specs b. Legal requirements for the business c. Human Resource Management d. Financing/Fund Raising options e. Suitable IT platform/solution 24

SCOPING KEY INFLUENCING FACTORS POLITICAL Political change : Change in government through democratic election can influence future business strategy Trade policy Political uncertainty can lead to a fall in investment by businesses and influence decisions on expansion and business ventures ECONOMIC Sophistication of Financial Markets ease with which capital can be moved and raised Monetary and Fiscal Policies interest rates, tax regimes, government aid Legislative Framework Judicial Framework Country s legal infrastructure needs to address the issues with respect to legal assignment of receivables, security interests of the property, requirements of registration system of collaterals etc. The role of judiciary in settlement of disputes is also of extreme importance to ensure effective factoring operations in any country SOCIAL The impact on the local environment not only affects human communities but can also inflict widespread ecological damage. TECHNOLOGICAL Availability and developments in technology can have a powerful influence Regulatory Framework Tax Framework Governed by a regulatory body and in case of no regulations factoring companies operate as per the corporate governance rules The accounting rules and tax code and their application and other key elements and thus this essential to clearly define the tax provisions 25

SCOPING - MARKET & PRODUCT SEGMENT Advanced Stable Advanced products SME Growth Start up Growth products Complex Products Mid & Large Corporate Factorable Industry 26 Geographical Coverage

SCOPING - COMPETITION & BARRIERS Banks & Financial Institutions MAJOR COMPETITOR Existing presence Vast resources Product Reach Competitors Existing Factoring Lack of established players leaves gaps to explore the market Company Product / Services Value Proposition Competition Competitive Products Factoring Traditional Financial Products Cash flow finance; increases with business Only finance/balance sheet funding/low cost - Domestic & International Factoring Trade Finance Payment system widely used International Factoring & Invoice Discounting 27

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 28

START UP SUPPORT Daily Communication On Ground help & Support IT Implementation Training Decision making matrix Start up Manuals BUSINESS Human Resource 29

BUSINESS SETUP 30

SOP S AND PROCESS FLOW Sales Describes and structure the different phases of process of selling services, assisting marketing activity and its decision making process. Credit & Risk Provides guidance on the risk appetite and risk policies. Finance Contains the various processes of Finance and eligibility and authorization matrix. Functions, duties and responsibilities of the finance department within the company. Details the various processes of operations with organization. Operations 31 Functions, duties and responsibilities of the department within the company along with work flow for operations activity.

SALES SOP & PROCESS Describes and structure the different phases of process of selling services, assisting marketing activity and its decision making process. Products - Products to offer - Basic qualifying criteria & requirements Sales & Marketing Strategy Application Form Debtor/Vendor Information Sheet Formal Selling Structure - Prospect tracking - Indication of terms - Client visits - Documentation - KYC guideline - Fees - Funding cost/interest - Collection cost - Stamp Duty & Taxes - Tariff Card Guidelines on pricing Client Information Sheet & KYC Credit Assessment/ Approval Process - Client risk scoring - Financial spreads - Client survey - Approval 32

CREDIT & RISK SOP & PROCESS Framework for decision making and internal limits for counterparty/country exposure Framework for monitoring Credit risk as per the statutory and regulatory requirement Approving authority as per the facility type & exposure Provides guidance on risk appetite and risk policies Credit Risk Policy Approval Powers Counterparty Exposure Maximum Exposure Guidelines on concentration risk/exposure norms Risk Management Company information form Personal information form Client Assessment note Financial Spread Client Risk score Client survey form Debtor Assessment Capital Adequacy - Responsibilities - Risk Categories Managing Risk KYC - Policy & Procedure Credit Approval Process Quality of Asset & Provisioning Policy guideline for managing risk categories Policy guideline on credit approval process & client assessment - Provisions - Revenue recognition Management of CAR as per statutory regulation/requirement 33

FINANCE SOP & PROCESS Details the function, duties and responsibility of Finance Function (overall control and management of company s Finances) - Approving Authority - Levels of authority - Exceptions Approving Authorities & guidelines Duties & Responsibilities - Budgetary controls - Statutory monitoring & reporting - Pricing & cost benefit analysis - Expense control Liability Management - Borrowing - Pricing - Capital - Operating Expense Management Bank Accounts - Authorization - Monitoring - Liaising with Banks - Financial Statements - Record keeping - Financial Reporting - Accounting System - Statutory Audit - Internal Audit Accounting Investment & Treasury - Investment - Treasury 34

OPERATIONS SOP & PROCESS Details the function, duties and responsibility of Operations (work flow of operations activity in accordance with the Factoring Management system) Client Setup - Facility note - Facility Setup - Amendments if any - Overdue/Dunning - NPA Management - Legal recourse - Collection follow up - Debtor follow up - Vendor follow up - Cheques handling - Receipt - Appropriation - Non Factored cash - Cheque returns Debt Management Client Contact Receipt & Appropriation - Client -Entry - Authorization - Advise - Correspondent Dispute resolution Dunning Adjustments & Reassignments NPA Disaster recovery Controls Authorization Matrix Document checklist Payout Debtor Setup Processing of Documents Disbursement - Debtor Setup - Debtor limit - Debtor contact - Required documents - Document handling - Document checking - Checking procedure - Fund availability - Limit availability - Exchange rates - Authorization 35

IT FACTORING MANAGEMENT SYSTEM IT system enables, integrated management of various assets involved in the factoring business. Why it is required? Factor processes and input massive amount of complex data everyday. Fast and reliable info necessary for business to identify trends. Proper tools are always required to take informed and effective decision. Increased productivity and optimal resource utilization. It cannot do Replace human judgment Find and provide appropriate solution to the problem Real time account management 36

SYSTEM INTEGRATION Integration of Factoring Management System with other systems (inside and Across organization) Bank Accounting System Factoring Management System Regulatory systems Other External Systems/ Organization 37

PRE SANCTION PROCESS A well defined and co ordinate process facilitates informed decision and enable risk mitigation Client/Prospect Visits - Performance risk - Debtor/vendor track record - Adherence to risk parameters as per the policies - Product parameters Field Survey Internal Risk Rating Preliminary Analysis Indication of Terms Credit Assessment Approval Verifications - Debtor/Vendor Verification - Client plant visit - Credit history verification - Reference checks Bank & Trade - Recommendation on overall performance and credit risk - Recommendation on term & condition 38 - Recommendation on contract - Documentation requirement Transaction & Legal

OUR OBJECTIVE Factoring Africa Emerging Business Opportunity BLEND PREPOSITION Build Train Transfer Feasibility/Scoping/Business Plan Business Setup Train the team on ground Transfer the business setup to trained team POST TRANSFER SUPPORT (IF REQUIRED) 39

THANK YOU Blend Financial Services Ltd 4 th Floor,C Wing, Pramukh Plaza, Cardinal Gracious Road, Chakala, Andheri(East), Mumbai 400099, India t +91 (22) 67770000 f +91 (22) 67770019 E factoring@blendfinance.com w www.blendfinance.com