Flexible financing - an innovative solution for Moldova
Creative financing benefits producers, bulk buyers, distributors and banks.
Moldova's economic growth of the past five years has brought about significant improvements in the national quality of life. However, some key players were unable to benefit from exciting opportunities created by the new market-driven economy. Notably, producers typically faced a lack of working capital as well as access to attractive markets, limiting their chances for growing their business. Similarly, distributors, challenged by issues of scale, did not have the ability to manage large inventory or increase their customer base. Bulk buyers had no single, reliable source for purchasing essential supplies on favorable credit terms.
USAID's BIZPRO-Moldova identified a gap in supply chain financing and commissioned market research to determine SMEs' needs for funding. Working with five leading banks, BIZPRO/Moldova evaluated banks' existing capacities and strategies for new product development, selecting Moldova Agroindbank (MAIB) as best qualified to pilot the launch of domestic factoring. This financing vehicle helps SMEs access flexible financing and assists them in better managing the risks of extensive inventories.
Domestic Factoring, is innovative trade financing that enables companies to grow their business through speedy access to finance. Imagine a situation where the wholesaler wants its money back quickly while the buyer runs short of cash in struggling to sell produce. Clearly, there is a link missing that could reconcile both parties and ensure there are no disruptions in the supply chain. In international banking this situation is considered a perfect case for extending Domestic Factoring service, also known as Invoice Discounting.
In meeting emerging market needs, MAIB launched a domestic factoring service whereby the bank purchases invoices of the bulk buyers, extending much-needed financing to local producers. Clients are then able to offer competitive credit terms to local wholesale distributors while having immediate access to working capital on competitive terms.
"Assistance for Domestic Factoring provided by BIZPRO/Moldova has been especially valuable. It included support of a market survey that identified a profitable target customer base," said Ala Polustanova, Head of the Product Development and Administration at MAIB. "The product design exercise generated an innovative product development process and we won an important contract for the Bank with Metro Cash & Carry Moldova. This product matched the company's trading cycle and credit terms provided by its suppliers. Being closer to the client is one of the prerequisites for successful product implementation, and the bank was able to establish a branch inside Metro's impressive new location." Domestic factoring has played an important role in the business case of METRO, an international retail and wholesaler with sales of more than $68 billion operating in 27 countries. Having invested $20 million, the Group has undertaken expansion into northern Moldova, as well as opening additional outlets in the capital. The benefits of trade financing techniques are now clearly seen in the Moldovan banking sector. In fact, Moldova's leading banks are now actively taking the initiative to acquire training in international standards and banking practices for an entire range of trade finance operations.
