This article was featured in the FCI Annual Review 2024 and written by Neal Harm, FCI Secretary General
Founded in 1968, FCI is the global representative body for the factoring, receivables and supply chain finance industry, a global non-profit association based in the Netherlands, with almost 400 Members in over 90 countries. The past few years have brought their challenges, from the pandemic to supply chain issues to geopolitical stresses in various parts of the world. Although the pandemic has finally subsided at a global level, many challenges continue at a regional level, including interest rates and inflation that continue to impact specific markets. FCI dealt with several of its challenges in 2023, including the impact of Morocco’s major earthquake just prior to the Annual Meeting in Marrakech. On top of these external issues and events, FCI underwent a significant change in the 4th quarter, with the election of a new Chairman and Executive Committee and the passing of the torch from one Secretary General to another. Despite these challenges, FCI continued to support its members during a period of growth in global factoring volume.
On a personal level, I am honoured to take on the role of Secretary General. I have been a practitioner in the industry of working capital finance with a focus on International for over 30 years. I have been very active within FCI over most of those years, joining several working groups, being elected to the Executive Committee, and receiving FCI awards with various teams. Joining FCI in this new role gives me the opportunity to work with global members and associations to advance the role of FCI in every market. I took on this challenge because FCI has excellent growth opportunities, and I look forward to deepening and expanding FCI’s market. My focus within FCI is ensuring that everyone on the team is focused on our Member’s Return on Investment. For our members, I want to make sure that every member is capitalising on FCI’s advocacy, education, global network of trade, and working capital institutions.
As I have taken the role of Secretary General, I see the challenges that we face as an institution with 56 years under our belt, but more importantly, the opportunities that are being presented to FCI, like India developing the Gujarat International Finance Tec-City (GIFT City), Africa rolling out the Model Law on Factoring, Asia developing various supply chain finance platforms, development banks coming to FCI to grow emerging markets with them, and FCI through EU Federation (EUF) taking a lead on addressing the Late Payment Regulations in Europe. Each market has a different need, and FCI is equipped with the talent and resources to support the needs of its Members. It is important for FCI to leverage and expand its network to continue supporting and developing business for its members. This focus and several new initiatives will be touched on in this report.
The Global Factoring Market
As was predicted in last year’s report, 2023 volumes slowed from the prior two years. However, the world factoring statistics indicate that the 2023 volumes in factoring and receivables finance witnessed a continued growth trajectory, increasing by +3.6%, which comes off the heels of two consecutive solid growth years in 2021-2022. Compared with the previous year’s EUR 3,659 billion, the 2023 estimated volume of EUR 3,791 billion represents the industry’s third straight year of growth, albeit a slowdown compared to the tremendous post-pandemic bump. In fact, 2023 can be considered a more traditional year as we swing back to normalised single-digit increases.
Membership
FCI has evolved as an association, increasing from more than 100 members 20 years ago to almost 400 today. Back then, over 45% of our membership was based in Western Europe and almost exclusively limited to traditional two-factor Members; however, that figure stands at 17% today. At the time, the Asia Pacific region accounted for only 5% of membership, but today, it is 24%. FCI added 31 new memberships in 2023 - below the 2019 peak, where 45 new members were onboarded; the growth in new memberships has improved after suffering the lingering impact of the global pandemic. Regarding member retention in 2023, FCI had 26 terminations reported for the year, compared to 14 in 2022. The composition of new members in 2023 continued from affiliate members, with over 70% joining FCI from emerging markets. This trend has been occurring, especially in the past decade.
Along with the evolution is the continued growth in Affiliate, Sponsor, and Partner Members. Organisations and Financial Institutions see the value or the Return on Investment as being associated with FCI. FCI is a thought leader in open account trade receivable finance, which is evident in the continued growth in the Membership. For this reason, the Executive Committee is embarking on a strategic review of the needs of FCI Members that will be concluded later in 2024.
2023 Initiatives
Impact of Digitalisation and Technology
Technology took centre stage within FCI over the past two years, which resulted in one of the biggest projects in FCI’s history, an investment of nearly EUR 1 Million to build the new edifactoring 2.0 platform. Since its launch in April 2022, FCI has been making steady improvements to it, and the users’ feedback has been positive. FCI also invested significantly in its internal accounting and treasury functions by implementing an internally controlled bookkeeping system, bringing all the bookkeeping activities in-house for the first time and implementing a new invoice approval system called ’Zenvoice’, which will ensure that all invoices are approved within the Secretariat in an automated fashion to include the responsible party overseeing the expense, ensuring four eyes principle. This process will allow FCI to have better control between the bank accounts, credit card activities, and other systems that will all be seamlessly and automatically directed to the proper GL accounts in the new accounting system.
The global tech advancements have changed FCI’s Membership composition over the years. FinTechs and other technology firms have become a big part of FCI’s ecosystem. The technology firms include fraud/risk prevention, digitisation, collateral registries, and alternative finance solutions. Financial Institutional Members are embracing the technology and thought leadership these Sponsor and Partner Members bring to FCI. Events have become more engaging across the Membership with these firms, along with related whitepaper and joint interviews with trade-related publications.
FCI also witnessed an increased interest in developing receivables marketplaces wanting to join FCI, as more companies are engaged in providing debt capital to the industry. Small and midsize businesses (SMEs) gain access to working capital by presenting invoices to a global network of institutional buyers who buy receivables via a real-time marketplace. The concept was an alternative to traditional factoring as we know it today. The technology has improved to such an extent that a number of new players are now emerging, especially in India and Singapore, and FCI is helping to lead the way.
African Development Bank (AfDB) Grant
FCI continues to support the deployment of the special purpose grant authorised by the African Development Bank (AfDB) to deploy capacity building in the emergence of factoring in Africa, ultimately benefiting SMEs across the continent and buyers across the globe. The project was to help upgrade and provide consultancy services for the capacity building of emerging and established factoring firms in Africa, developing sustainable knowledge, and building a new learning platform in Africa.
The grant includes advising start-ups in the factoring space. It also provides advisory and mentoring services. In the past year, it helped support the organisation of conferences and workshops across Nigeria, Senegal, and Morocco to train and sensitise future factoring users, commercial banks, and government officials. It provided scholarships to various members and stakeholders in Africa, allowing them to enrol in the FCI Academy’s online courses. It also included funding for entrance into the FCI-Afreximbank ’Certificate of Trade Finance in Africa’ (COTFIA) programme, a one-year highly specialised hybrid education experience orchestrated by the Afreximbank and partly led by the American University in Cairo. In addition, through the grant, Afreximbank and FCI organised a major event on factoring under the AfCFTA at the Inter-African Trade Fair in Cairo, Egypt, in November. The grant went live on the 1st of February 2021 and ended on the 31st of December 2023.
Supply Chain Finance and the FCIreverse Project
FCI has made investments in the FCIreverse platform to support supply chain finance with its initial launch in 2019, but of course, it was stymied by the pandemic. Over the past five years, the product has evolved globally, with more and more financial institutions and technology companies getting more involved, which has led FCI to reorganise the SCF committee and refocus its efforts on the core of FCI’s traditional 4-corner model. In this model, which leverages the two-factor system, the export factors around the world can support the anchor buyer’s FI, by educating the supplier on the many benefits reverse factoring offers, signing a local factoring contract with the supplier, providing Know Your Customer (KYC)/Anti-Money Laundering (AML) guidance, and potentially funding against assigned receivables.
The Evolution of Receivables Registries
FCI also witnessed an increased interest in the development of receivables registries. However, there is a hesitation in some markets due to the risk of financial institutions perfecting their rights to the invoice as an asset. The focus and push within the private sector have caught the attention of several central banks and regulatory agencies. The ability for financial institutions to publicly register their debt or ownership against a company’s trade receivable as an asset is a critical step for a market to provide security around the trade receivable.
Advocacy
FCI has worked diligently on launching three significant initiatives, each announced during the 55th Annual Meeting in October 2023, namely the UNIDROIT Model Law on Factoring, IFC/World Bank’s Factoring Regulatory Guide, and the FCI Legal Study. The purpose of the Model Law is to provide an instrument for States that want to introduce a new factoring law or update their existing laws. The Model Law was first initiated in 2019 by World Bank representatives who recognised the importance of a standalone Model Law on Factoring, especially for those emerging markets who are considering introducing factoring in their countries. The Factoring Model Law Working Group is working towards a pragmatic yet flexible approach to capture the intricacies of factoring transactions while maintaining legal accuracy in the drafting process to cover a variety of open account arrangements, such as factoring with or without recourse, reverse factoring, non-notifiable factoring, etc. It is emphasised that providing such legal clarities to a comprehensive spectrum of factoring transactions would boost investor confidence and thus promote easier and greater access to credit.
Islamic International Factoring
FCI’s recent strides in Islamic international factoring marks a milestone in the realm of global finance. Through a collaborative effort with key stakeholders, including the International Islamic Trade Finance Corporation (ITFC), FCI has developed a comprehensive set of rules tailored specifically for Islamic factoring. By signing a Memorandum of Understanding (MOU) with ITFC and convening a virtual meeting of the Islamic Factoring Chapter, FCI aims to attract more Islamic Banks and NBFIs, fostering broader membership and catalysing substantial growth in Islamic factoring worldwide.
This initiative not only promotes Shariah-compliant financial markets and instruments but also underscores the importance of adapting regulatory frameworks to accommodate Islamic finance principles, thus bolstering cross-border operations and enhancing the resilience of the international finance system. Onboarding more Islamic Finance Institutions (IFIs) into the FCI network will contribute significantly to developing Shariah-compliant financial markets and monetary instruments, fostering innovation and stability while facilitating seamless cross-border operations.
Furthermore, with enhanced communication facilitated by FCI, the turnover of Islamic international factoring is expected to experience notable increases in the years to come, reflecting the growing significance of this sector in the global economy. FCI has witnessed several Islamic factoring transactions in the last year.
Conclusion
FCI underwent significant leadership change in 2023 and entering 2024, both in the Secretariat and the Executive Committee. Everyone across FCI has embraced these changes, showing the resilience of the infrastructure and membership. FCI is evolving along with the trade finance industry, helping close the existing trade finance gap.
This article was featured in the FCI Annual Review 2024. Every June, FCI publishes its Annual Review, giving an overview of progress made by the world's biggest and most important factoring network. The Annual Review also presents FCI's annual figures and global factoring statistics.
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