The Zimbabwe Stock Exchange recently announced they are joining forces with the Harare Receivables Exchange “for the development of a receivables financing platform”.
The platform will be targeting Micro, Small and Medium Enterprises (MSMEs) because the belief within the two organisations developing this platform is that the above group of businesses “continue to face challenges of limited access to finance” and the receivables financing platform will put an end to this.
The success stories are on the basis that receivables financing through a formalised marketplace reduces the risk for potential financiers.
How will this work?
Receivables financing is an interesting concept. In the case of the platform being built by the ZSE and HRE there will be 3 parties involved; suppliers, financiers and debtors.
An example I got from a ZSE spokesperson explained the process as follows; Let’s say an SME supplies Pick N Pay with a fruit juice and they are told they’ll get their money in 40 days. If the SME is on the receivables financing platform they can take this invoice to ZSE and a financier (after agreeing with Pick N Pay the debtor) can pay the SME in three days instead of the initially proposed waiting period.
The SME gets their money and then the financier can later get the money from Pick N Pay.
Considering that we are in a hyper-inflationary economy one of the questions that popped up to me is how then do the financiers protect the value of the money they’re owed and the ZSE spokesperson I spoke to suggested that they negotiate terms with debtors and this includes an interest rate.
The spokesperson also explained that the financiers on the platform can be banks, brokers and other liquid businesses.
2 comments
I don’t understand why the financier should go to PicknPay for their money????
Why should the financier talk to PicknPay when they were never involved in the financing deal????…This will not work…
The financier did the deal with the supplier. When the supplier receives the money from Pick n Pay they should pay the financier (with interest) …This will work, Simple…
I hope you correctly understood the explanation of operation of the platform. If it is as you wrote, I don’t think this platform makes sense. How can a third party, charge the buyer interest on a deal where they had already agreed payment terms with the supplier (i.e, time span)? Interest can only become liable after the time span has lapsed. The buyer can also simply say, “No”.
This makes more sense as a discount financing platform. In such a scenario, PnP owes you $100,000 due in 40 days. Taking into consideration, inflation and interest rates, when the supplier approaches the financier (via the platform), the financier offers to pay the supplier $70,000 in 3 days. Giving the supplier a similar time value of money as they would get in 40 days.
The financier then takes on the risk. If suppose in 40 days, inflation and exchange rates don’t move much, they stand to gain. If they do move a lot, they stand to lose. But, usually the supplier gets such a raw deal, the risk of losing is minimal.
On a different note, to the author: in the title why use an acronym for the least known entity HRE which is also confused with Harare, yet use ZSE in full?