denotes premium content | Dec 5 2008 Trade & Forfaiting Review magazine archive
Volume 7 Issue 10
Editor's foreword
It is nearly impossible to have a discussion about the forfaiting industry at present without asking whether it is in fact a dying art. There is a good case that it is: some once-prominent players are effectively exiting the business, even if they won’t go so far as to admit it; those still in the game have downsized forfaiting operations or folded them into broader trade-finance units; volumes are down across the board; and small boutiques are struggling to turn a profit.
“You see fewer people in the market and less paper floating around than ever,” one broker told me recently. “There just isn’t much going on.” It has even been suggested – tongue in cheek perhaps but telling nonetheless – that the International Forfaiting Association ought to change its name to the Trade Finance Association in order to ensure wider participation. And as forfaiting becomes less viable as a stand-alone product, it is also becoming less useful as a stand-alone skill-set. A typical institution, and its clients, needs a trade financier, not just a forfaiter; discounting receivables is the easy part.
Certainly forfaiting in its purest form – medium-term bill discounting – is sickly if not quite dead. As a result, those forfaiters who insist on clinging to this strict definition, and who resist the move towards more transparency, standardisation and eventually electronic trading, are unlikely to survive in the business. Creativity, flexibility and, most importantly, a loose interpretation of the term “forfaiting” will be the new rules of the game.
It’s time to start thinking, as many forfaiters already are, of forfaiting as a technique (bringing the negotiable instruments and supporting documentation together and then selling them) that can be applied to any kind of financing, trade-related or not. Diversification is essential. Maybe that means providing additional services to exporters above and beyond bill discounting, such as consulting on or structuring deals. Maybe that means accepting collateral in the form of certain assets as opposed to relying on guarantees from a bank. Maybe that means being more proactive in originating transactions and more open-minded about the types of transactions to get involved in. Maybe that means branching out into working-capital lines or pre-export commodity financing.
There are disparate – and often passionate – views on these various approaches, and they will undoubtedly be the subject of much debate at the IFA annual general meeting in Lisbon from September 15th-17th. But there is no denying that the forfait model of old just isn’t enough to get by on anymore. For the forfaiting industry, it is, quite simply, adapt or die.
Courtney Fingar is editor of TFR.
Features
After the fall
After a major crisis three years ago and a mini-crisis just a few months ago, Turkey appears to be on the mend. To what degree it has recovered so far, how much stability can be expected in the longer term – and what all this means for trade finance – is up for debate. Erika Morphy reports on banks’, forfaiters’ and rating agencies’ current take on Turkish risk.
Turkish ratings: Getting an upgrade
The end goal
Even though the Euro 2004 football is long since over, there should be excitement enough in Lisbon as the forfaiting community convenes for the International Forfaiting Association annual general meeting and as members find out the score on the new market practice guidelines. But, unlike football, the guidelines are more than a game of two halves, writes Sean Edwards, co-chairman of the market practice committee.
Market practice guidelines: A win for the IFA?
A whole new game
With the traditional model of forfaiting looking less and less sustainable, the industry is struggling to redefine itself. Not everyone has the same ideas on how to best do this – through greater transparency, more standardisation, a broader investor base? – but most agree that a wider definition of what constitutes forfaiting is necessary if the industry is to avoid elimination. Erika Morphy reports.
LCs versus forfaiting
Despite the obvious merits of forfaiting as a financing method in emerging markets, its appeal is far from universal and many exporters, especially smaller ones, still cling to the use of export LCs for a wide range of reasons, such as prohibitively high minimum transaction amounts and pricing. The take-up – or rather lack of take-up – of forfaiting in India is a perfect case in point, as Ravi Mehta, a certified trade specialist and independent export-finance consultant, reports.
French affairs
TFR’s 2003 French bank survey was conducted in a rather dreary global economic climate, and although the outlook from the country’s top trade financiers was bright, few predicted just how good the year would be. Kathleen Williams surveys the key players to ascertain views on the current state of affairs and what promise the coming months hold.
Putting the “e” in BLs
With the growth in e-commerce and the introduction of eUCP, the introduction of an electronic bill of lading seems to be an almost inevitable development. But the law is not entirely clear on the matter, including whether an eBL is even considered a bill of lading within England’s Carriage of Goods by Sea Act 1002. Richard Gwynne, a partner at Stephenson Harwood in London, considers some of the legal issues relating to an eBL.
Fade to white
In these days of increased emphasis on profitability, both variables of the equation – revenue and expense – can be levered through a white-label partnership. Alka Katwala, vice president at JPMorgan, explains how white-labelling of trade-finance products and services can help improve productivity while increasing revenue.
Regulars
Letter from Hong Kong: David Sullivan
Company profile: Success from seed to harvest
Operating from custom-built headquarters in Liverpool, UK, a traditional centre of the global cotton trade, Plexus Cotton describes itself as a modern company in a traditional business. Nick Earlam, chairman and founding and managing director, tells Kathleen Williams how the company has taken a long-term view and expanded beyond the traditional role of merchant or middleman in order to meet increasing demands for quality and reliability of supply.
Personal profile: Taking it to the next level
In the two and a half years since Paul Maxwell joined KBC Bank as global head of structured trade finance, the bank’s structured business has been re-organised along product lines, its loan book has grown significantly and it has been getting involved in transactions at a higher level. But there’s more to come, as he tells Courtney Fingar.
Emerging-market debt pricing
Omni Whittington Commentary, August 2004
Country-risk appetite
The analysis from Standard Bank London:
