Page 233 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes  Risk reduction: Forfeiting business enables the exporter to transfer various risk resulted
from deferred payments, such as interest rate risk, currency risk, credit risk, and political
risk to the forfeiting bank.
 Increased trade opportunity: With forfeiting, the export is able to grant credit to his
buyers freely, and thus, be more competitive in the market.

11.13.7 Benefits to Banks

Forfeiting provides the banks following benefits:

 Banks can offer a novel product range to clients, which enable the client to gain 100%
finance, as against 8085% in case of other discounting products.

 Bank gain fee based income.
 Lower credit administration and credit follow up.
Factoring Forfeiting
Short Term Medium Term
Buyer’s Bank’s guarantee not insisted Normally insisted
Could be with or without recourse to the seller Always without recourse
Collect as an agent Collect as a sole owner

Self Assessment

State whether the following statements are true or false:
6. For telebanking facility, customers need not have to enter into an agreement with the
bank by signing a declaration.

7. Tele-banking services do not help customers to avail banking services right from their
home
8. Factor provides all the services except for the prepayment of debts i.e. the client is paid
money upon maturity and realization of debt.
9. Microfinance refers to the provision of financial services to low-income clients, including
consumers and the self-employed.

11.14 Securitisation

11.14.1 Features

 A structured process where under loans and other receivables are packaged, underwritten
and sold in the form of asset-backed securities by commercial banks/financial institutions.

 Illiquid, non-negotiable and high valued financial asset is converted into securities of
small value that are tradable and transferable.

 A lending institution called "originator" identifies the loans in its portfolio that are to be
securitised.
 Such identified assets are passed through another institution called "special purpose vehicle
(SPV)" usually an investment banker. On such transfer of assets for value to an investment
banker, they stand removed from the balance sheet of the originator.

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