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Daily Tribune
02-06-2025
- Business
- Daily Tribune
Forfaiting a Lucrative option
Forfaiting started in the middle of last Century in Europe and it is taking shape all over the globe to promote trade finance and boost relationship between exporters and importers. In this context, the ICC Rules for Forfaiting (URF 800), aimed to create a standard set of rules to be applied within the forfaiting market worldwide, moreover, the United Nations Commission on International Trade Law (UNICITRAL) endorsed (URF 800). Needless to say, this is good work for ICC, as this rule and the other rules of UCP 600, URDG 758, etc., show the ICC commitment to promote international trade. Forfaiting is a method of trade finance that allows exporters to obtain cash by selling their medium and long-term foreign accounts receivable at a discount on 'without recourse' basis. Forfaiting can be undertaken by banks or finance firms that perform non-recourse export financing through the purchase of trade receivables. 'Without recourse' or 'non-recourse' means accepting the risk of non-payment. Forfaiting eliminates risk of non-payment once the goods have been delivered to the foreign buyer, in accordance with the agreed sale terms. Advantages of forfaiting include, inter alia, elimination of all risk to the exporter with full financing of contract value, exporters can offer medium and long-term financing in markets where the credit risk would otherwise be high, forfaiting works with bills of exchange, promissory notes, or a letter of credit, foreign buyers provide bank guarantee, letter of guarantee or LCs and financing can be arranged on a one-shot basis at fixed or floating interest rate. Once forfaiter commits to the deal and sets the discount rate, the exporter can incorporate the discount into the selling price. The exporter then accepts a commitment issued by the forfaiter, signs the contract with the importer, and obtains, if required, a guarantee from the bank of the importer that provides the documents required to complete the forfaiting. The exporter delivers the goods to the importer and delivers the documents to the forfaiter who verifies them and pays as agreed in the deal. Since this payment is without recourse, the exporter has no further interest in the financial aspects of the transaction and it is the forfaiter who must collect the future payments due from the importer. The cost of forfaiting to the exporter is determined by the agreed rate of discount for the tenor of the receivables and a margin reflecting the risk being sold. In addition, there are certain costs that are borne by the importer that the exporter should also take into consideration. The degree of risk varies based on the importing country, the length of the loan, the currency of the transaction, and the repayment structure. The higher the risk, the higher the margin and therefore the discount rate. However, forfaiting can be more cost-effective than traditional trade finance tools because of many attractive benefits it offers to the exporter. We believe, it is a beneficial advisable tool to interested parties to promote trade finance.
The Star
22-04-2025
- Business
- The Star
No running from insolvency
KUALA LUMPUR: The plan to introduce the Cross-Border Insolvency Bill is a positive step forward in enhancing Malaysia's legal and institutional frameworks for insolvency matters involving multiple jurisdictions, say experts. They also said that such a Bill is crucial as Asean economies are increasingly interlinked through trade, investments and supply chains. The Association of Banks in Malaysia (ABM) said strengthening efficiency in insolvency proceedings is key to improving transparency, especially where companies operate across borders and have assets in various countries. It said the government's alignment with internationally recognised standards, such as the model law of the United Nations Commission on International Trade Law (Uncitral) on cross-border insolvency, is a step that supports Malaysia's standing in the regional and global financial community. 'Efforts that improve creditor protection and facilitate effective corporate rehabilitation efforts are crucial in supporting business continuity and investor confidence, especially in today's interconnected economic landscape,' ABM said in an interview. It also said clear and practical guidelines for the recognition and coordination of cross-border insolvency proceedings should be included in the Bill. The association said the Bill also should promote effective judicial cooperation between Malaysia and foreign courts or representatives in insolvency matters. UCSI University Malaysia associate professor for finance Dr Liew Chee Yoong said the proposed Bill reflects a broader commitment to modernising Malaysia's insolvency laws by aligning them with international standards, such as Uncitral. 'By adopting its principles, Malaysia can promote greater legal certainty, streamline administrative procedures, and ensure the fair treatment of domestic and foreign creditors,' said Prof Liew, who is also a research fellow at the Centre for Market Education. He warned that with the absence of a structured cross-border insolvency framework, the risk of legal fragmentation, asset loss, and delayed debt recovery becomes significant. 'This Bill, therefore, enhances regional financial stability by providing a consistent legal mechanism for creditors to recover their claims, irrespective of where the assets are located.' Prof Liew noted that the proposed Bill is designed to support corporate rehabilitation efforts, and by recognising and integrating corporate rescue mechanisms. He said it signals a shift from a liquidation-centric model to one that prioritises business continuity and restructuring. 'This shift not only preserves economic value and jobs but also bolsters investor confidence in Malaysia as a reliable and resilient business environment. 'Additionally, allowing provisional relief such as asset freezes or preservation orders before full recognition of foreign proceedings can protect assets from being dissipated during legal delays. 'Provisions should be included to mandate training programmes for judges, legal professionals and insolvency practitioners to ensure effective and consistent application of the new law,' he added. Datuk Seri Azalina Othman Said had said local creditors of insolvent companies with assets within the Asean region may be able to recover their debts soon. The Minister in the Prime Minister's Department (Law and Institutional Reform) said this was among the measures that are being proposed under the Cross-Border Insolvency Bill to be tabled in Parliament this June.
