## **Factoring From A Global Perspective**

potential reasons why the importance of factoring differs across countries. Data limitations prevent a detailed, country-level analysis of the size of most of the lending technologies described above. For example, there are no data that permit an analysis of the absolute or relative size of financial statement lending compared with relationship lending. But factoring is an exception: data are available on the volume of factoring at the country level.

Table 1A shows the volume of factoring by country and region from 1998–2003. The top three countries in 2003 were the United Kingdom (160 billion euro), Italy (132 billion euro) and the United States (86 billion euro). Growth in factoring was strongest in Australasia and Europe but evident in all regions. Not surprisingly, growth in factoring was extraordinarily strong in Eastern Europe (EU 8 plus Romania)—growing by 434 percent in aggregate, though from a very small base. (The factoring industry in the EU 8 is discussed in greater detail later in the paper.) Even more established factoring markets in Western Europe, however, displayed unusually strong growth during the period under review: 91 percent in the United Kingdom, 76 percent in Italy, and 73 percent in Germany.

Table 1B shows the volume of factoring as a percentage of GDP in 2002, allowing for comparisons across countries about the importance of factoring to each economy. Factoring is much less important to the financial system in the United States than it is in Cyprus, Italy, the United Kingdom and Portugal, the four countries where factoring plays the largest role in the economy. In regional terms, factoring is most important to the financial system in Europe. But, it is also quite important in countries elsewhere in the world such as Chile, Singapore and South Africa.

In some countries a significant share of receivables is factored internationally, often through factoring alliances. Thus, credit and collection of a receivable generated in international trade can be factored effectively. In most countries the fraction of internationally factored receivables is quite small. However, in some countries such as Israel and Hong Kong this fraction is quite large. The case of Hong Kong (though not the case of Israel), which has a high ratio of exports to GDP, may suggest a positive association between international factoring and higher export activity. Equally striking is the variance of factoring’s importance. Even in Europe, where factoring is relatively important, there are big differences in its importance across countries. Relative to credit to the private sector as a percentage of GDP, it appears that countries with more developed factoring sectors have more developed credit markets (Table 1B). But in some cases factoring seems to substitute for weak credit markets, as in Italy, Portugal and the Baltics. In addition, factoring plays only a minor role in some large economies, such as Canada and Germany (the latter for primarily legal reasons). Research on these associations that controls in a multivariate regression analysis for other factors that might affect the volume of factoring indicates that: (i) there is a positive relationship between a higher fraction of international factoring and a larger percentage of exports; and (ii) there is a positive relationship between a higher level of factoring (as percentage of GDP) and greater financial development (Klapper 2000).

# **FACTORING, THE GLOBAL CREDIT MARKET, AND COUNTRY CONDITIONS**

Just as the importance of factoring varies significantly across countries, the relative importance of other credit products varies widely as well. For instance, the fact that factoring plays a much larger role in the Italian than in the U.S. economy likely implies that other types of lending play a much larger role in the United States than in Italy. Although data limitations prevent a complete analysis of all the lending technologies—particularly for financial statement lending and relationship lending—in the case of Italy and the United States there is enough information to speculate that factoring substitutes for asset-based lending. In Italy asset-based lending is nonexistent, while in the United States it is 25 times larger than factoring.

**14**

**THE WORLD BANK**