At the European Bank for Reconstruction and Development (EBRD) Trade Facilitation Program Forum in Istanbul, Turkey, TFG spoke with Peter Mulroy, Secretary General of FCI.
FCI is a global association of businesses, financial institutions and non-financial institutions engaged in open account financing.
The association, active in more than 90 countries, has 400 members who collectively represent approximately 60% of the global volume and 90% of the cross-border factoring activity of the $3.5 trillion global factoring industry.
This broad global access allows Mulroy to travel the world and talk about the successes of the factoring and receivables industry, often using Turkey as a role model.
The success of the factoring industry in Turkey
Since the first bill was funded in the country in 1989, the industry has grown.
“There were only a few players in the early 90s,” Mulroy said.
“Today, more than 60 financial institutions are engaged in some degree related to domestic and international receivables financing.”
One factor in this growth has been the foresight of Turkey’s former leaders to develop a strong legal and regulatory environment around receivables finance to ensure that financiers are confident that the courts will protect their investments.
Another factor in Turkey’s success is the nature of business conducted within its borders.
“Turkey is a country of consumer products, which means there is a significant amount of consumer products made here, especially in some basic industries like textiles and clothing,” Mulroy said.
“Therefore, SMEs (small and medium-sized enterprises) have been very successful in capturing this open account business with manufacturers in Turkey.”
A third critical success factor is that the country has developed a successful factoring association with broad participation from diverse stakeholder groups.
This has created closer relationships with regulators, better industry education, increased government cooperation and better access to international markets.
“Turkey is one of the most successful international factoring markets in the world, and they have done this by developing a very strong relationship with global financial institutions around the world to support the cross-border element,” Mulroy said. .
The impact of macroeconomic shocks on factoring in Turkey
Almost every industry in the world has been affected by current macroeconomic events like the Russian-Ukrainian conflict, soaring inflation, food shortages or the energy crisis.
Although it felt these events, the factoring industry in Turkey might not be as negatively affected as others.
“Factoring always works well in times of crisis,” Mulroy said.
“It’s a given and has been backed up by evidence of past economic upheavals over the past century.”
Turkey has also seen a large influx of immigrants since the crisis, from countries such as Ukraine, Russia and Belarus.
Experts attribute the influx to Turkey acting as a welcoming hub and crossroads for travelers unable to obtain visas to enter the European Union (EU).
Similarly, many manufacturers based in Ukraine, Russia or Belarus have moved their operations to Turkey to help mitigate the supply chain disruptions that followed the invasion.
Those manufacturers exporting to the EU also benefited from the fall in the value of the Turkish Lira against the Euro, leading to a significant increase in orders.
The result is a thriving Turkish export market.
“Turkish exports are booming – it’s one of the strongest markets in the world in terms of trade,” Mulroy said.
“But risk is another matter – the political risk environment here is quite high.”
In some cases, local banks that do not have a strong presence in other foreign exchange markets find it difficult to access capital in dollars or euros.
“But overall, the strengths still outweigh the weaknesses,” Mulroy said.
“Even though you see inflation and rising interest rates, the factoring industry is doing very well here in Turkey.”