Origins of Forfaiting
Forfaiting evolved in the 1960s and was originally used to finance
exports from countries in Western Europe to East European countries.
With the growth in global trade, the product is now widely used to
finance trade with all geographic areas, and has also been extended
from its traditional role of post-shipment finance to provide pre-export
finance, structured trade finance, project finance and even working
capital.
In order to remain competitive, exporters are often faced with
having to allow their importing partners longer period of payment.
Such difficulties expose the exporter to a number of risks which
can assume substantial proportions, depending on the country of
the importer and the period allowed for payment. On top of typical
commercial risks, such as insolvency of the importer, unwillingness
or inability to pay, exporters have to consider the difficulties
in appraising the monetary, economic and political risks inherent
in the importer's country. The requirements placed on the financial
institutions by exporters seeking solutions to the ever-growing
complexities of international financing have led to an increased
demand for Forfaiting.
The term "a forfait" in French means, "relinquish
a right". Here, it refers to the exporter relinquishing his
right to a receivable due at a future date in exchange for immediate
cash payment, at an agreed discount, passing all risks and responsibilities
for collecting the debt to the forfaiter. |
