By Olga Rosca
Factoring, a financial service based on the sale of accounts receivable, has the potential to boost the growth of smaller businesses in Ukraine as companies struggling with the impact of the COVID-19 pandemic seek finance, heard the participants in a webinar held jointly by the European Bank for Reconstruction and Development (EBRD) and the National Bank of Ukraine.
The two-day virtual event called for sound policy and a good regulatory framework to enable the healthy development of factoring, to expand access to finance for small and medium-sized enterprises (SMEs) and to strengthen their financial resilience.
The webinar brought together more than 100 trade professionals, bankers and international experts and was delivered by the factoring working group at the National Banking Association of Ukraine in cooperation with FCI, the largest global representative body for factoring and financing of open-account domestic and international trade receivables.
The factoring working group includes representatives of Ukrainian banks and non-banking financial institutions which together aim to address the current market gap.
In Ukraine, receivables finance represents only 0.1 per cent of the country’s GDP, compared to 8 per cent of output in neighbouring Poland, where the factoring market remains the fastest-growing financial sector, worth €66.1 billion(US$77.80billion) and serving more than 18,000 businesses.
“Factoring reform has the potential to address the market gap in receivables finance in Ukraine, currently estimated at between €1.5 billion and €3.4 billion,” says the head of the EBRD’s Trade Facilitation Programme, Rudolf Putz.
“The demand from smaller businesses, which typically find it difficult to secure bank loans, will grow exponentially as the COVID-19 pandemic shows no signs of slowing down. Developing the factoring sector will help expand access to finance for businesses and save jobs.”
FCI expressed a strong view that Ukraine needs to develop an effective regulatory policy governing the factoring business and to adopt a factoring law.
Drawing on the experience of Greece, Poland, Turkey, the United Kingdom and the United States of America, the working group and the National Bank of Ukraine agreed the next steps in reforming the sector.
These include the separation of factoring from debt collection; business education and marketing of factoring; the promotion of paperless and automated document flows; the protection of creditors’ rights; the rethinking of factoring-related risk assessment; the establishment of a factoring risk insurance framework; and improved legislative regulation.
Factoring is experiencing a market revival due to the arrival of more sophisticated legal and technical solutions. It is particularly useful for providing SMEs with access to working capital.
The EBRD has long promoted factoring through the activities of the Trade Facilitation Programme and through its investments in financial institutions. In order to help increase the use of this service, the Bank developed a legal programme that aims to improve the legal and regulatory environment for factoring in economies where the Bank invests.
Under the programme, the EBRD offers technical assistance for the creation of an enabling legislative environment and an appropriately designed regulatory regime. It also seeks to support the development of local and regional reverse-factoring programmes.