Flight to simplicity

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19 December 2008

While supply chain finance works extremely well in a booming economy, the real test comes during an economic downturn. In the Indian sub-continent, banks are becoming far more structured and focused in their approach to lending, writes Michele Martensen.

Underlying trade is the main source of working capital finance for businesses in the Indian sub-continent. The financing options range from traditional overdraft facilities backed by book debts to pre-shipment and post-shipment export financing. According to Ayalur Vasudevan, head of trade finance sales for India at Deutsche Bank, based in Mumbai, medium and large business houses have started looking for more innovative structured solutions such as off-balance sheet financing. "Structures such as factoring, forfaiting and insurance-wrapped financing are becoming more common among large corporates," says Vasudevan.

"One such example is account receivable financing with limited recourse. This enables the seller to increase their sales with a few buyers without taking additional exposure on them. Once goods are sold, as per arrangement with the bank, they sell their receivables and are able to reflect off-balance sheet items in the absence of bank borrowings on their balance sheet. Another area where we...

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