The International Chamber of Commerce (ICC) has welcomed the UN’s decision to endorse its package of rules designed to pave the way for global standards of conduct in the forfaiting market.
In a 22 August announcement, the ICC confirmed that the UN Commission on International Trade Law (UNCITRAL) had thrown its weight behind the measures – dubbed Uniform Rules for Forfaiting (URF) 800 – at a top-level meeting in Vienna during the summer.
The ICC announcement defined forfaiting as “a trade financing technique based on without recourse discounting of an instrument representing an exporter’s receivables payable at a future date”.
An instrument of that type would typically evidence a payment claim, or debt obligation, on the part of an importer or financial institution.
As such, it would be pursuant to a letter of credit, standby letter of credit, guarantee, bill of exchange or promissory note created under an export transaction.
Heralded as the first-ever package of international rules for forfaiting, URF 800 was devised over three-and-a-half years, in a joint effort between the ICC and the International Trade and Forfaiting Association.
In the course of that work, the organisations gathered input from a range of major trade finance banks, forfaiting companies and exporters.
ICC Banking Commission senior policy manager David Bischof said: “This endorsement will go a long way [towards] encouraging the banking and exporting communities to adopt URF 800 more widely for without recourse financing of international receivables.”
He added that it would especially help SMEs “to access adequate and affordable trade finance at all levels… ultimately growing total exports”.
UNCITRAL received the original URF 800 submission from Pradeep Taneja, group head of trade technical services with the Bahrain-headquartered Bank-ABC, and chair of the ICC-Bahrain Trade Finance Forum.
Taneja said: “The URF 800 endorsement is an important milestone for ICC, as it reinforces the ICC mandate of removing legal obstacles to international trade by progressively modernising trade law.
“Furthermore, this endorsement is a testament to the success of ICC rules and represents the most powerful effort to harmonise forfaiting rules on an international level.”
In its introduction to the URF 800 package, the ICC notes: “Although forfaiting has traditionally been defined as the without recourse discounting of trade-related receivables, over the last 20 years it has evolved considerably.
“Modern forfaiting now encompasses many more instruments, structures and concepts than has ever previously been the case. As a versatile and flexible approach to raising finance for international trade, it has great benefits for both providers and recipients of finance.”
The introduction explains: “Forfaiting facilitates the provision of finance to the international trade community. It has the ability to make instruments that evidence payment claims liquid.
“By making payment claims easier to transfer, forfaiting enables them to be used as more than just a means of obtaining payment for goods or services delivered: they can be used to provide finance.”
It adds: “The critical role forfaiting plays in securing financing for exporters and importers motivated ICC to involve itself in this area.”