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Thursday, May 26, 2016, Jaistha 12, 1423 BS, Shaban 18, 1437 Hijri


Talking on Banking
Factoring can help NBFIs to mitigate risks!
Faruk Ahmed
Published :Thursday, 26 May, 2016,  Time : 12:00 AM  View Count : 96

When some CEOs of non banking financial are depressed with slower growth then Md Mafizuddin Sarker, Managing Director and CEO of BD Finance is optimistic about the growth.
Innovation and collaboration are the two ideas that will drive the growth of non banking financial institutions, he told me Tuesday when I met him at his office for a courtesy call. Md Mafizuddin Sarker, a former banker and a financial market expert is the chairman of Bangladesh Leasing and Financial Institutions (BLFCA), a single platform of 33 NBFIs operating in the country.
Mr Sarker was tired when he took his sit at his chamber after a three long meeting with his colleges in four braches outside Dhaka through Skype regarding business operations when some NBFIs are facing tough situations to manage their business mainly due to high cost of funds and limited scope of business.
"Factoring service  is  an important factor for NBFIs to survive in the tough race as it is  suitable  to  both  the  SMEs  and  large  corporate. It helps businesses get fast cash without the approval restrictions necessary for business loans or lines of credit from traditional lenders. And the transactions can even be lucrative for some companies", the CEO said.
The CEO of BD Finance and the BLFCA Chairman is sending his staff members abroad to learn more about factoring business to revitalize his company. His predecessor Mr Asad Khan, former BLFCA chairman and CEO of Prime Finance recently expressed his concern that some banks will see lower profit growth this year as their equity have been dried out by the stock market bubble through their associate merchant banks.
Factoring can mitigate risks in lending and help NBFIs to grow, CEO of BD Finance said explain the feature of factoring which is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.
A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Factoring is not a loan. No debt is assumed by factoring. The funds are unrestricted, providing a company more flexibility than with a traditional bank loan.
In a recent seminar held in the city by Bangladesh Bank Management Institute (BIBM), financial experts also advocated for factoring business and suggested banks and NBFIs to redesign their business model. The terms and nature of factoring can differ among various industries and financial services providers.
Most factoring companies will purchase your invoices and advance you money within 24 hours. The advance rate can range from 80% to as much as 95% depending on the industry, your customers' credit histories and other criteria. The factor also provides you back-office support.
Once it collects from your customers, the factor pays you the reserve balances of the invoices, minus a fee for assuming the collection risk. The benefit of factoring is that, instead of waiting one to two months for a customer payment, you now have that cash in hand to operate and grow your business.
Mr. Sarker said he is sending a team of his company officials to abroad to gain expertise about factoring. Innovation and collaboration will define the destination of NBFI sector of Bangladesh. Factoring is one of such innovation which can help not only NBFI sector but also banking one which is plague with high amount of bad loans, he said.  
"We are now crippling with mounting classified loans and rising cost of funds. The market is very dull, competition to bag clients is intensifying by the day when recovery of loans has become a tough job mainly by bad motives of borrowers and partly by legal complexities", he said.
The performance of the NBFIs over the years suggests that the industry can be growing up in a sustainable basis like commercial banks. To minimize risks, Mr. Sarker sees factoring is a valid way for NBFIs to finance international trade. Bangladesh Bank should promote factoring service with appropriate guidelines and providing subsidy to companies involved in factoring business. Both importers and exporters  to take  a  full  advantage  of  all  the  services  rendered  by  factoring companies, he noted.
"Factoring service  is  an important factor for NBFIs to survive in the tough race as it is  suitable  to  both  the  SMEs  and  large  corporate. It helps businesses get fast cash without the approval restrictions necessary for business loans or lines of credit from traditional lenders. And the transactions can even be lucrative for some companies", the CEO said.
"However, everything is not a cakewalk. There is a need for caution on two fronts for those players who have scaled up lending business -- the sustainability of their asset quality needs to be seen as increasing leverage may also pose a risk", he said.
As the banking institutions are grappling with high costs of operations and a myriad of compliance issues, global non banking financial companies (NBFCs) are tooling up and stepping in to fill the gaps, which contributed to the growth of shadow banking in the country. In recent days, NBFIs have emerged as an alternative lender to fill up the gap.
But the challenge for policymakers is to strike the right balance between containing systemic vulnerabilities related to non banking lending risks and preserving the benefits of shadow banks. Here innovation and collaboration can help both market players and policy makers to overcome their situation.
And factoring is one of the example that NBFIs can adopt in their operations, what BLFCA chairman Mafiz Uddin Sarket thins to minimize the tension of the CEOs like his predecessor Mr. Asad Khan, CEO of Prime Finance.










Editor : Iqbal Sobhan Chowdhury
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