How digital factoring marketplace can foster economic growth in Bangladesh

The journey of the digital factoring marketplace in Bangladesh has been marked by growth and innovation as the country has embraced digital technology to improve its financial sector. Initially, factoring in Bangladesh was largely done through traditional methods, such as direct negotiations between companies and banks. 

However, as technology has advanced, several digital platforms have emerged to provide more efficient and streamlined factoring services. These platforms connect suppliers and investors, allowing suppliers to receive financing more quickly and investors to earn a return on their investments.

One of the most notable developments in the digital factoring marketplace in Bangladesh has been the approval of these platforms by the Bangladesh Bank, the country's central bank. This approval has helped to increase confidence in the industry and has encouraged more companies to adopt digital factoring as a means of improving their financial performance. Additionally, the Bangladesh Bank has taken steps to expedite the growth of the digital factoring industry, such as providing support and guidance to new platforms entering the market.

In recent years, the digital factoring marketplace in Bangladesh has continued to grow and evolve, with new platforms emerging and existing platforms expanding their offerings. This growth has been driven by increasing suppliers' demand for financing and a growing awareness of the benefits of digital factoring among investors and other financial institutions.

The digital factoring marketplace is playing an increasingly important role in the Bangladesh economy, providing a crucial source of financing for small and medium-sized enterprises (SMEs). By allowing businesses to access funding quickly and easily, digital factoring is helping boost economic growth and create jobs while improving cash flow and providing a more efficient alternative to traditional banking systems.

Another advantage of digital factoring is its accessibility. With no need for collateral, credit checks, or complicated application processes, digital factoring offers a simple and straightforward way for SMEs to access finance. This is particularly important in Bangladesh, where many small businesses struggle to secure funding from traditional banking institutions.

With its combination of speed, accessibility, and improved cash flow, the digital factoring marketplace is balanced to play an increasingly meaningful role in the Bangladesh economy, offering SMEs the tools they need to succeed in helping to drive economic growth and create new opportunities for entrepreneurs and businesses of all sizes.

Traditional factoring, as the name suggests, involves selling invoices to a factoring company in exchange for immediate payment. The factoring company then takes on the responsibility of collecting payment from the invoice's recipient. This method of financing has been used for many years and provides a quick and convenient way for businesses to access cash.

Digital factoring, on the other hand, is a more modern and technologically advanced approach to factoring. It takes advantage of online platforms and digital tools to streamline the factoring process, making it faster and more efficient than traditional methods. Digital factoring also offers increased accessibility, allowing businesses to apply for financing from anywhere at any time without having to visit a physical location.

One key difference between traditional and digital factoring in Bangladesh is the speed at which financing is provided. Digital factoring can provide funding within hours, while traditional factoring can take several days or even weeks. Additionally, digital factoring is often less bureaucratic, requiring fewer requirements and a more straightforward application process.

The digital factoring marketplace offers several benefits to large corporations in Bangladesh. It can improve their cash flow by providing immediate payment for invoices, reducing the time they need to wait for customer payment. Digital factoring platforms are also more efficient, streamlining the factoring process with advanced technology. 

Digital factoring marketplace creates new opportunities for entrepreneurs and businesses of all sizes. Photo: Noor-A-Alam

This can help to reduce the time and resources required to manage a company's finances. Additionally, digital factoring can provide a more flexible and accessible source of financing for large corporations, allowing them to secure funding quickly and easily, even during times of economic uncertainty.

The digital factoring marketplace can greatly benefit suppliers in Bangladesh by providing a more efficient and accessible source of financing. By selling their invoices to a factoring company, suppliers can receive immediate payment for their goods or services, improving their cash flow and reducing the time they need to wait for payment from their customers. 

Digital factoring platforms streamline the factoring process with advanced technology, making it faster and more efficient than traditional methods. This can help suppliers manage their finances more efficiently and reduce the time and resources required to secure funding. Additionally, digital factoring platforms use blockchain technology and other digital tools to enhance security and transparency, reducing the risk of fraud and increasing overall efficiency.

The role of the Bangladesh Bank in this scenario would be to facilitate and expedite the development and implementation of the digital factoring marketplace. This could involve regulatory measures and oversight to ensure the integrity and security of the marketplace, as well as to promote the use of the platform by businesses to access financing and investment opportunities. By supporting the growth of the digital factoring marketplace, Bangladesh Bank can help to improve access to finance for businesses in the country and boost economic growth.

In Bangladesh, digital factoring marketplace platforms are currently only approved for local procurement payment and vendor payment. However, Bangladesh Bank should also consider approving digital factoring for foreign procurement to expand further the reach and benefits of this innovative financial tool.

Supply chain professionals in Bangladesh can benefit from using the digital factoring marketplace by having improved cash flow, enhanced financial stability, streamlined processes, and increased visibility. By providing suppliers with more efficient and immediate payment for their goods and services, digital factoring can improve the overall cash flow in the supply chain. 

Additionally, the platform can give suppliers access to financing, helping to ensure the supply chain remains financially stable. The digital nature of the marketplace leads to a more streamlined and efficient process, reducing manual labour and freeing up time for supply chain professionals. 

With the use of digital tools, supply chain professionals can have greater visibility into the financial aspects of their operations, allowing them to make more informed decisions and optimise their processes. Overall, the digital factoring marketplace can provide valuable financial tools and support to help supply chain professionals in Bangladesh grow and succeed.

The contribution of a digital factoring marketplace to Bangladesh's GDP growth would depend on several factors, such as the adoption rate among businesses, the level of competition in the market, and the effectiveness of the platform in addressing the financing needs of companies. However, it has the potential to play an essential role in boosting economic growth and improving the competitiveness of the country's businesses.

Mohammad Ashraful Islam Khan is the Head of Supply Chain Advisory Services, Management Consulting at KPMG Bangladesh.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.