IFC has approved a US$10mn trade finance facility for Bangladeshi local apparel manufacturer MBM Group, GTR can exclusively reveal.
The IFC has launched its first Global Trade Supplier Finance transaction in Bangladesh, which will see MBM grow its international exports, most notably to buyer Levi Strauss & Co.
The IFC will provide a supplier finance credit line to MBM Group and the company will receive funding backed by receivables from Levi Strauss & Co., freeing up working capital for the MBM Group.
MBM Group sells to other retailers and brands such as but not limited to: JC Penney, Nautica, 5.11, and Cintas. The financing is only related to Levi transactions.
In an interview with GTR, in which the loan amount was exclusively revealed, Kurt Cavano, chief strategy officer at GT Nexus (the data platform) , explains: “MBM produces men’s, women’s, and children’s tops and bottoms for Levi and others. Under this programme, MBM will have access to up to US$10mn of early payments at 320 basis points.”
Wasim Rahman, managing director of MBM Group, says: “By partnering with the IFC, we are paving the way for others in the sector to avail of the facility and obtain affordable short-term finance.”
“IFC’s trade supplier finance programme helps our suppliers in emerging markets gain access to capital at reasonable rates, leading to new growth opportunities, positioning them better to compete in the global marketplace,” adds M. Zubair Aslam, director of product development and sourcing at Levi Strauss & Co.
Kyle Kelhofer, IFC country manager for Bangladesh says: “The textile sector plays a central role in employment, particularly for women, in Bangladesh. Through IFC’s trade supplier finance programme, suppliers like MBM Group will be able to access much-needed financing and grow their business while effectively managing risk.”
IFC launched this facility in Bangladesh in partnership with GT Nexus, which is a cloud-based business network and platform for global trade and supply chain management.
Commenting on the MBM deal, Cavano tells GTR: “A large company like Levi will post their purchase order and then vendors all around the world can act on that. Everyone has real-time visibility into what’s going on through the platform for their transactions. We automate everything from the purchase orders, through to the shipping information, so there’s complete visibility into where the goods are and the whole process, making everything a lot more efficient.”
“Bangladesh is a challenging place and has really stringent exchange control rules. Levi went through a certification process, to ensure they have sustainable business practices, and obviously there was a credit analysis done,” adds Cavano.
He states: “After certification, it was opened up to all of the Levi factories, who could request funding and one of the ones that requested it was this first one in Bangladesh. Many other factories will be going through the process moving forwards. I expect it to be dozens and dozens more, as they have several hundreds of factories. This is early days, but we’re excited about it as it strengthens Levi’s supply chain and it’s also good for the factories.”
Established in 2010, IFC’s Global Trade Supplier Finance program is a US$500mn multicurrency investment and advisory programme that provides short-term finance to emerging market suppliers and small and midsized exporters. IFC’s total investment in Bangladesh for fiscal 2012-13 was approximately US$774mn
The GT Nexus platform enables participants to operate against a core, real-time set of information across multiple supply chain functions. This optimises the flow of goods, funds and trade information.
“The platform connects buyers and sellers together globally to automate the whole global trade process,” Cavano explains. “Because it’s cloud-based, it brings all the relevant parties together, not just the buyers and sellers being connected together on a one-off basis, it’s connecting everyone including the freight forwarders, the financial institutions and all the other relevant parties.”
“We’ve been working with the IFC for a number of years,” adds Cavano. “We were one of the early pioneers of early payment programmes, or certain companies may call them factoring programmes or supply chain finance programmes. We’ve been working with corporations to deploy their own capital, alongside financial institution, for 10 years.”
A couple of years ago GT Nexus was approached by the World Bank’s IFC division, which was looking for a platform it could use to support developing markets. Cavano says: “We started to talk to them and put this programme in place. The way it works is that they’ll take a large buyer, say Levi in this instance, certify that they are sustainable and environmentally, and socially, responsible, and then offer Levi early payment financing opportunities for their vendors.
“What it allows Levi to do is to inject not only in capital, at a really good rate – ranging from 220bps to 320bps, which is really cheap capital in the developing world – but it also brings some third-party credibility and an inspection around their factories to ensure that they too are socially and environmentally-compliant. It’s a double whammy of making your supply chain better.”
25,000 companies are currently using the platform and it works in over 60 countries. Cavano adds: “We manage about US$100bn of global trade on the platform and we do north of about US$20bn in payments.”
The IFC programme is currently available in countries including as China, Vietnam, Nicaragua, Sri Lanka, Hong Kong, Philippines, the Dominican Republic, Mexico and Bangladesh. Cavano discloses to GTR: “We’re working with them on rolling it out to more countries and we’ll be going into Cambodia, Egypt and Indonesia.”
A key challenge in a multitude of third world countries, adds Cavano, is the “huge cost of capital for SMEs and the cost of goods that are being manufactured there”. “So by bringing in the IFC and offering finance with 300bps, which is 3% APR, that is incredibly powerful for those factories to get access to that cheap capital and it really helps them.
“With literally hundreds of billions of dollars of trade going through our platform, moving ahead, we have the capability to do some big data analytics,” Cavano reveals to GTR. “We haven’t announced it yet but we’ve got some early trials underway at this stage. We’re using technology to link all the supply chains together.”
Cavano adds: “We’re working with a financial provider to use big data to look at the whole trade floor on the platform, predicting at the time of purchase order what percentage is actually going to ship and ship on time, for example. Looking at this big data at the start of the deal we can issue different purchase orders at different times of the deal rather than looking at the credit of the parties.
“I’m really excited about what the future has to hold to improve supply chains.”