THE FIRST FACTORING COMPANY OF PAKISTAN
Interview: Aniq-ul-Islam, CEO of DCD-JS Factors
SADAF AURANGZAIB, Senior correspondent
Apr 09 - 15, 2007
DCD-JS Factors is a joint venture sponsored by DCD Capital, L.L.C., USA and Jahangir Siddiqui & Company Limited Pakistan to provide international factoring to Pakistani exporters. DCD-JS Factors Inc., USA, is a New York-based factoring company offering international factoring to Pakistani exporters under a special re-factoring arrangement with GMAC Commercial Finance L.L.C., USA. DCD-JS Factors (Pvt.) Ltd. is the Pakistan-based marketing office of DCD-JS Factors Inc., USA. Together, the joint venture partners bring extensive experience in offering financial services' products to their clients globally. At present they cover exports to Canada, European Union, Puerto Rico and USA.
We met Mr. Aniq-ul-Islam, CEO of DCD-JS Factors (Pvt). Ltd, and talked to him about his company.
PAGE: Tell us something about DCD-JS Factors, when did you establish it and how it functions?
AI: DCD-JS Factors was established in 2003 and it started its operations in 2005. We have a joint venture relationship between American company called DCD Capital and Jahangir Siddiqui & Co Ltd., which is the biggest financial company in Pakistan. The main objective of this company is to facilitate Pakistani exporters who sell their goods on a credit term up to 90 days. We protect their receivables and we insure the receivables. In case of bankruptcy or financial inability of a buyer to pay, we pay 100 percent of their invoice value within 150 days so it facilitates our Pakistani exporters to sell the goods aggressively in international market, specially USA and Europe. This trade called 'factoring' globally is about $ 800 billion market. It is for the first time that we are providing the service in Pakistan and started fishing the concept of factoring in Pakistan gradually all over Pakistan, including Sialkot, Faisalabad, Lahore, Multan and Karachi where the main exporters are located. We have also facilitated our bankers to protect the receivables of their clients who sell their products on credit terms.
PAGE: What is meant by factoring?
AI: Factoring has basically four components - first is to get the buyers assessed. The Pakistani exporters identify the buyer; we then locate the buyer in their own country and financially assess them. After assessment we find as to how much money could be lent to them on credit which we then tell our exporters here; second part is that once he is agreed and willing to sell the goods to the buyer on such credit, he then signs the contract with us where we take the responsibility that if the buyer got bankrupt or financially unable to pay then we pay on his behalf. So the first is assessment, second is the contract where we give the protection to that receivables. The third is we follow up the invoices in receivables management. If the invoice is getting delayed we call them as to why the payment is getting delayed and what are the reasons hence the receivables management is done by us. The fourth is at zero period, meaning by the moment he shipped the goods if somebody can finance him the money which that will come after 90 days because of the credit period time, the buyer will pay him after 90 days but if the finances can be arranged at the zero period then at the moment the exporter shipped the goods, he will have a smooth cash flow also. So if all four components like assessment, signing the contract, receivables management and discounting go together, then it's called 'factoring'. Factoring basically means managing receivables and purchasing receivables.
BENEFITS OF FACTORING
Pakistani exporters can use factoring to obtain the following benefits:
•Expand Business on Documents on Acceptance (D/A) payment terms
•Get Protection Against Delayed or Non-Payments.
•Meet Challenges of Globalization by offering soft payment terms of D/A.
•Get credit assessment of international buyers.
•Increase your volume of orders by offering D/A payment terms.
•Collect receivables on maturity and get remittance without delay.
•Avail liquidity by discounting D/A bills with commercial banks.
•Maintain comprehensive credit control support. Factoring not only follow-up for collection but also regularly analyze credit history.
Banks can use factoring agreement as collateral instead of traditional collateral, which makes their discounting of D/A business possible and secure.
PAGE: As a financial services company, what areas do you operate in?
AI: We deal with the exporters who are exporting on credit. Credit means selling goods on such time where buyer will make the payment after certain time like 60 or 90 days after the maturity of the invoice, so the risk i.e. if the buyer doesn't pay after taking the goods, the Pakistani exporter will have no leverage to go and recover the money, we protect that part on behalf of our exporters.
PAGE: How do you see its performance after you started your operations?
AI: In 2003, the company started, but it took us a year to prepare the documents and take State Bank's permission, etc. We basically started our operations in 2005. Since 2005, we are doing about 20 million dollars of business; we have over 17 clients all over Pakistan. It's gradually growing as the base of Pakistani exporters is growing.
PAGE: Is your company the only one providing this kind of services or are there other companies too doing the same job?
AI: We are the only company providing these services; we are the first factoring company of Pakistan.
PAGE: How do you see its importance? Do you think there should be more companies to come to this business?
AI: Certainly, there should be more companies in Pakistan. It is a $800 billion market globally. India has started factoring in year 2000, they have about 7-8 companies by now. They have a huge volume of business developing on factoring business. We need more factoring companies to facilitate the Pakistani exporters all around the globe where there exists exporting. Initially, when we started we were covering only USA, now we have started in Europe, Singapore, Malaysia, Indonesia and there are other countries which we are working with and where we can give them a coverage like Middle East, South Africa, Japan, China, etc. as Pakistani exporters are exporting to these countries as well.
PAGE: As a financial company, do you also grant loans to the smaller consumers?
AI: No, we don't lend the money. Factoring includes discounting of bills, also where we go to the banks and through our documents which the bank keeps as a collateral against an exporter and keeping that collateral bank then lend the money to the Pakistani exporter so we resolve their problem of cash flow or lending the money through banks.
PAGE: Now recently we are seeing a lot of development going on around developing the I.I Chundrigar Road; what is your view on that?
AI: All over Karachi, the roads and infrastructure is in worse condition, especially the places where industries are located like SITE, Korangi and F.B. Area, where the clusters of exporters are based. Once we go for our appointments, it gets very difficult to reach there on time and that scuttle a number of meetings in a day. As you know that Chundrigar road is also dig out, there are definitely difficulties reaching office on time. Our clients are also facing problems because of that so there are difficulties but it's always bound to happen when the infrastructure is being built. We got to bear with this time certainly it affect the business but I hope the time should be reduced as much as possible so that the impediments could be overcome.
PAGE: How do you see the development structure of I. I Chundrigar Road should be in order to facilitate the coming up projects of Twin Financial Towers, etc?
AI: If globally, you travel around like Manhattan, Tokyo, London, etc. there mostly happens one area i.e. the financial hub of the city. You don't need to build taller buildings but taller buildings do show strength, it gives an international image to our country. On Chundrigar road if the road and the parking area is being properly planned, then there is no doubt that the Chundrigar road will be the Manhattan of Pakistan.
If things would be done in an organized manner and bypass road is prepared for the Chundrigar users then that would be very convenient for the people whose time is very precious. If this can be organized then the development should not be stopped. Our only problems come when it is not organized, not forecast properly, not managed properly, the frame is not set accordingly, people are not informed accordingly so then the things got messed up. In order to avoid that, we should plan it properly. The way Karachi is growing, it's a must needed thing that Karachi should have it. Chundrigar road alone is the whole Pakistan's economy backbone including State Bank of Pakistan, Karachi Stock Exchange, all major banks' head offices are located there, so you can imagine the transaction size which is a billion dollar from Karachi alone so it should be considered very properly when you take up the development of this road.
PAGE: How much the outlook of the infrastructure could boast the financial side of the country?
AI: Basically when you talk about the infrastructure that's the backbone of any economy. You must have an infrastructure. If you don't have infrastructure like buildings, roads, electricity, gas and facilities to run businesses, then you will be nowhere. You must have a good infrastructure to develop your economy and that is the backbone of any economy. Anybody who says that you don't need infrastructure lives in a fool's paradise so we must need a good infrastructure to develop our economy.
PAGE: Any thing that you would like to bring about in view of your company?
AI: It's a difficult task for us in Pakistan to sell this product because we are bringing change and anybody who is bringing change always encounter the resistance to that change so the first thing is that we are not only selling the product, we are educating the market with the changing time and economy around the globe. To facilitate and accept the change, we are educating our clients first, advising them what changes are happening around you and around the globe. How the Indian, Chinese and Bangladeshi exporters are competing and you must need different tools to compete and we add to that tool in Pakistan to facilitate our exporters to compete across borders larger hitters who are selling same goods to the same buyers. So we are one of the tools to the Pakistani exporters and that is helping a little part in this economy to grow as government has the same agenda to grow exports and very few private companies have same agenda and we carry it with us so that exports will grow. I would like to tell one more thing here that State Bank of Pakistan had showed the default figure of 800 million dollars of Pakistani exporters stuck across border which is not paid by the international buyers, we protect such receivables and foreign exchange for Pakistan.
PAGE: Any message for the Pakistani exporters?
AI: It's a difficult time for exporters because we have shown the strength for breaking the nine billion dollars of export through a double figure of sixteen billion dollars, this is not enough. We have to cross different milestones that the government is setting. The first milestone is another twenty billion dollars mark up exports to be built in; we have to stand and learn to survive on our own capability rather than asking government every time to facilitate and subsidize. We have to be more competitive in terms of organizing ourselves, be more competitive in what we are selling, more aggressive in terms of taking use of different tools which can facilitate them to be aggressive in international market and we are one of the tools which can help them.