The FINANCIAL — IFC, a member of the World Bank Group, is supporting the growth of Vietnamese small and medium enterprises by promoting factoring services as a means of access to critical finance.
Vietnam is one of the world’s fastest-growing economies and has new regional and international trade arrangements forged with ASEAN Economic Community, European Free Trade Agreement and the coming Trans-Pacific Partnership. However, many of the country’s producers and traders lack the financial means to expand with strength. By providing short-term funding against receivables, together with management solutions, such as risk protection and collection services, factoring services will allow businesses to take advantage of imminent growth opportunities, both at home and beyond.
“The increasing trend of globalized markets and falling trade barriers are leading to multiplication of cross-border business opportunities,” said Kyle Kelhofer, IFC’s Country Manager for Vietnam, Cambodia and Lao PDR. “Vietnamese small and medium enterprises can increasingly leverage new trade finance facilities such as factoring to improve competitiveness and attract foreign partners so that they can expand trade volume and grow business.”
IFC, Factors Chain International (FCI), Vietnam Banks’ Association (VNBA) and Vietnam International Bank (VIB) offered a one-day intensive training on factoring to promote secured transactions and greater access to private sector finance. Nearly 200 representatives from commercial banks and enterprises also attended a conference in Ho Chi Minh City today to learn about the full range of services covered by factoring. They discussed the benefits for importers, exporters and service providers such as commercial banks while addressing the challenges involved with delivering and scaling up factoring services in Vietnam. Implemented in partnership with Canada, Japan and Switzerland, the training and conference programs are examples of IFC’s continued support of small and medium enterprises, according to IFC.
“Factoring services help businesses save existing credit lines and enjoy deferred open account payment terms as well as avoid language barrier when dealing with foreign partners,” said Vuong Thi Huyen, VIB’s Head of Wholesale Banking Division. “As a leading SME trade bank and the best issuing bank in East Asia & Pacific, VIB is ready to support import-export enterprises and SMEs via innovative financing solutions, including factoring to expand and grow their businesses.”
With an annual international trade volume of about $300 billion, Vietnam demonstrates significant potential for the development of international factoring. According to FCI, in 2014, factoring in Vietnam handled by FCI members amounted to Euro 100 million, a fraction of the total volume of business handled by its factoring companies worldwide, which neared Euro 2,373 billion. Factoring services in Vietnam is currently offered by eight official providers, three of which are members of FCI, a global network of leading factoring players. In Vietnam, IFC has also piloted factoring services via its Global Trade Supplier Financing facility since May 2003, providing financing of over $4.5 million to 11 local suppliers of four international buyers in the garment sector.
“Factoring is simply a package of services designed to make international trade as easy and smooth as possible by offering risk mitigation tools and liquidity together to support the growth in trade between importers and exporters, so it’s a preferred method in international trade around the world,” said Peter Mulroy, Secretary General of FCI. “If you want to expand foreign sales, you will have to offer buyer-friendly terms such as open account which factoring can support without reducing your security or affecting your cash flow.”
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