The Zimbabwe Receivables Market Place (Private) Limited (ZRM) was incorporated this year to offer working capital solutions through receivables discounting and trading.
It is a joint venture between the Zimbabwe Stock Exchange Limited (ZSE) and Harare Receivables Exchange (Private) Limited (HRE).
ZRM chief operating officer Dawn Chatema (DC) tells our Acting Editor Ndamu Sandu (NS) that invoices can be used as collateral thereby rescuing SMEs that have struggled to raise funding due to the absence of collateral.
Find excerpts below:
NS: What were the reasons behind the launch of ZRM?
DC: ZRM was launched to offer the market a centralised, automated platform where various parties can benefit from receivables financing.
Our aim is to provide convenience and efficiency for Suppliers and Financiers given that all parties will be registered and participating on the same platform.
NS: Are there other countries in Africa with the same platform?
DC: There are no similar platforms in Africa. However, there are countries that are participating in factoring and receivables finance on a much larger scale than Zimbabwe.
Africa accounts for a disproportionate 1% of global factoring volumes.
In spite of this, Africa has experienced a significant growth in its factoring volumes, growing from US$16.835bn to US$25.195bn between 2009 and 2017.
The bulk of the factoring growth was experienced in South Africa, Tunisia, Morocco, Egypt, Kenya and Mauritius.
So, ZRM exists to pioneer a platform that will put Zimbabwe on the trade receivables finance map in Africa. There are, however, similar exchanges in the US, UK, Europe India and Pakistan.
NS: How is the platform faring in a case study country using data available?
DC: In India there is The Receivables Exchange India Limited (RXIL). RXIL was incorporated on February 25, 2016 as a joint venture between Small Industries Development Bank of India—the apex financial institution for promotion and financing of MSMEs in India and National Stock Exchange of India Limited, the premier stock exchange in India.
RXIL operates the Trade Receivables Discounting System (TReDS) Platform which went live in January 2017.
RXIL has enabled close to 400 Micro-Small and Medium Enterprises (MSMEs) from across engineering, textile and automotive sectors in Tamil Nadu.
Overall, RXIL has close to 3,000 MSMEs, 500 buyers and 35 financiers.
Based on their 2019-2020 Annual report, RXIL is steadily growing in terms of revenue but is still making losses.
The rational being that the company is still in the early stages of its life and further, TReDS is relatively a new concept to which the constituents are still warming up to.
The initiatives taken towards improving the customer experience through digitisation and Enterprise Resources Planning integration has put RXIL ahead of the competition.
The lockdown has presented an opportunity where TReDS has become a go-to option for corporates as they see value in conserving their cash while paying their supply chain partners on time.
Amid lockdown, TReDS experienced a 20% jump in registrations.
RXIL operates under the regulation of the Reserve Bank of India.
The Indian Government has been supportive of TReDS since its inception and has taken various initiatives to increase the traction in the form of workshops being organised by RBI, MSMEs Ministry and through its other arms.
RXIL’s major issue at present is that TReDS looks good only on paper.
Most of the MSMEs are not interested due to an extensive setup process.
Moreover, the same cannot be done without the buyer’s concurrence.
NS: How are SMEs supposed to benefit from ZRM?
DC: SMEs can benefit from ZRM in that they will minimise payment waiting periods from larger debtors, which will increase enterprise efficiency and stock turnover.
This will enable suppliers to grow their operations while also hedging against inflation risk.
NS: How does the system work?
DC: We have 3 parties that participate on the ZRM platform, suppliers, buyers and financiers. Suppliers are companies selling goods and services on credit terms and wishing to raise working capital based on the outstanding invoices.
Suppliers should be tax compliant and meet the criteria specified by ZRM. Buyers are purchasers of goods and services that have been supplied on credit.
Allowing suppliers to sell confirmed invoices which will assist their ability to restock and supply and strengthens their supply chains especially those in the SME sector which typically struggle to accommodate credit terms or delayed payments.
Financiers are institutions with funds typically looking for short term investments with attractive returns by bidding for the invoices from registered suppliers at a discount. How does it work?
Supplier sells goods to buyer and receives an invoice.
Supplier uploads the respective invoice onto the ZRM platform. Buyer reviews and confirms the approved invoice. Registered financiers bid for the approved invoice.
Supplier selects the best bid and gets financed by the successful bidder. Buyer makes settlement payment to ZRM.
Financier receives advance amount plus discount.NS: What is the size of the order book in Zimbabwe dollar?DC: ZWL$22.5m.
NS: What is the size of the order book in United States dollar?
DC: We are currently not offering USD receivables on the ZRM Platform.
However, a USD platform is in our pipeline.
NS: How many SMEs have registered for the platform since its launch in August?
DC: Thirty two, with the majority in the process of finalising registration.
NS: How many corporates and financiers have registered?
DC: 8 are in the process of finalising registration.
NS: In terms of the financiers that have registered, are there pension funds and asset managers?
DC: We have engaged the asset managers and pension funds, and we are making headway.
As they manage funds on behalf of clients, there are certain processes required to get approvals and comfort in investing into a new asset class.
NS: SMEs have struggled to get funding due to the absence of collateral. How is ZRM going to address that?
DC: ZRM allows a business the opportunity to sell its receivables and get funded in as little as 24hrs.
This is a flexible and easy way to access financing without providing additional security. We do not request registered suppliers to provide any form of collateral.
How our structures work is that the invoices themselves suffice as collateral. We have designed and implemented risk management processes and enhancements that enable us to solely rely on the invoices as collateral.
NS: What roles will the ZSE and HRE play in ZRM?
DC: ZSE and HRE are joint shareholders in ZRM but ZRM has its own board of directors, management, and staff.
Some of the board members and senior management were seconded from the two shareholders. Both entities therefore have the mandate to ensure the entity is well capitalised and run efficiently and viably.
