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Al Ahram Al Eqtisadi Newspaper

Secretary General of Factors Chain International in an interlocution with Al-Ahram Al-Iqtisadi

Islamic factoring attracts Middle East exporters into Future for advantage of regaining debts against commission

US$60 million factoring deals made by two companies in the Egyptian market and a company incorporated by National Societe General Bank (NSGB) applied for membership.
Factors' Chain International is now examining a membership application submitted by a company associated to NSGB, which, in case of obtaining the membership of the organization, will be the third company working in the Egyptian market, after Egyptian Company for Export Credit Guarantee and Egypt Factors.

HSBC-Egypt also plans, through company under incorporation, to apply for the organization's membership. The organization exists in 66 countries through a network of 252 financial institutions and companies who are members of the organization. Those members concluded both local and international factoring deals and trade finance with an amount of 1,109 Billion Dollars till the end of 2008.

Jeroen Konstamm, Secretary General of FCI, in a brief interlocution with "Banking Street" editor, stated that he expects increase of the organization members in Egyptian market within the next few years, on the basis of the membership status in the Turkish market, which- in addition to other markets like Chile and Mexico- is similar to the Egyptian market.

Based on Dubai case, which did not know factoring ten years ago, five companies operating in local factoring, import and export, in the last six years, were competing among each other, where three main players namely HSBC Bank, National Bank of Emirates and Standard & Charter, were among them.

Konstamm nominates textile exports, food industries and ready-made garment industry from the Egyptian market for factoring activities.

The same source bets that the Middle East market will go ahead for Islamic factoring on the ground of preference of obtaining the debt collection service against commission and not against interest, the matter that increases competition with the Non-Islamic factoring, which provides service against both commission and interest.

Regarding the factoring business in the Middle East markets at the end of 2008, Saudi Arabia comes at the top with US$ 4 billion of deal value, then comes UAE with US$ 1,860 billion of deal value and then Lebanon with US$400 million of deal value.

Regarding the status of the business itself, Europe has 67% of international factoring deals, then comes Pacific Asia with relative weight of 20%, America with relative weight of 12% and then Africa with 1% relative weight.

Exporters define factoring as a set of financial services, under which due invoices of the exporter to be paid by the importer are assigned to the factoring company or the financial factoring institution in order to obtain collection of such dues, protection against risks and finance. Factoring differs from bank financing, as the first is made after shipping, with or without the right of recourse to the seller, its cost is reasonable, cash is linked to growth that may reach 90% that is made available to the exporter and it covers performance and non-payment risks, while the latter is made before and after shipping, directed to financial risks, guarantees are the basis of relationship, cash is linked to such guarantees and cost is based on good financial statements.

In the Egyptian market, the experience of Egyptian Company for Export Credit Guarantee and Egypt Factors had shown up, where the first (Egyptian Company for Export Credit Guarantee) began providing factoring service to its customers in the middle of 2006 till the end of 2009, and made factoring deals with a value of US$25 millions for 25 exporters on dues of exports to Europe and America.

The same company – quoting the words of Ola Gaddalla, board Chairman and managing director- is nowadays studying new factoring request of 30 million dollars' value, submitted by 15 exporters who had dues for textile and chemical exports to importers in South Africa, as well as food and industrial goods exported to Asia and exports to European importers.

As for Egypt Factors, it provided factoring services to more than 100 industrial, commercial and service companies (80%). It started its business in 2009 with SMEs. Factoring deals made by the company during the year reached 60 million dollars, where international factoring represents 10% and the rest is a local factoring as stated by Marius Savin & Ahmed Shaheen, the director general of the company.

Most important sectors the company dealt with are textile, furniture, packing materials, food industries and food deliveries' sectors. Within this year 2010, the company targets the provision of factoring services to more segments of SMEs, doubling factoring processes along with extending purchases' factoring and local factoring to meet requirements of medium-size companies in purchasing from their suppliers both locally and abroad through more flexible payment modes and methods at the time suppliers will get immediate payments of their invoices from small & medium-size companies, the matter that will provide them with instant cash.

Egypt Factors is the first licensed financial institution in Egypt for practicing factoring business. It is a joint financial institution incorporated among Commercial International Bank with 40%, FIM Bank-Europe with 40% and International Financing Corporation with 20%.

It provides integrated set of factoring services, including financing solutions that serve and support both importers and exporters. It also plays an active role in the activities of local trade, with special focusing on SME sector, where it provides a set of factoring services like financing services, where it pays in advance about 90% of receivables & purchased commercial papers, and the rest is paid upon invoice settlement. Such service provides customers with instant cash and transfers their sales from credit sales into cash sales, a matter that increases the rate of production cycle and helps in doubling production of various companies.

The company assumes management and collection services, where it collects values of invoices and commercial securities from purchasers within Egypt or abroad at the time of maturity. Such service allows customers to focus their efforts on production and marketing of their products. The company provides credit protection of debts, as it guarantees payment of covered value on behalf of each purchaser and settles all un-paid and un-disputed invoices within a short time from their date of maturity, a matter that assists customers in growth and expansion of their sales while they are assured regarding non-increment of any losses due to delinquency of purchasers.