YANGON UNIVERSITY OF ECONOMICS

DEPARTMENT OF COMMERCE
MASTER OF BANKING AND FINANCE (4TH BATCH)

MBF-134 LEGAL FRAMEWORK IN FINANCE

GROUP ASSIGNMENT- 8

SUBMITTED BY: GROUP-1

GROUP MEMBERS
1. MBFI 49 - Saw Yu Nandar
2. MBFI 3 - Aung Thu Ta
3. MBFI 4 - Aye Aye Myat
4. MBFI 7- Aye Ma Ma Htun
5. MBFI 30- Kyaw Htoo
6. MBFI 56- Su Myat Mon
7. MBFI 61- Thandar Aung
8. MBFI 69- Wai Moe
9. MBFI 72- Wint Wah Oo
10.MBFI 16/3rd- Hein Hein Thar
11.MBFI 42/3rd- Nway Zar Chi Min

DATE: 25.03.2023
 What is Factoring Company? How to operate it in Myanmar?

Types of Factoring
In the banking sector, there are several types of factoring available, including:

1. Recourse factoring: The seller retains the risk of non-payment by the debtor. If the debtor
fails to pay, the seller is responsible for repurchasing the receivables from the factor.

2. Non-recourse factoring: The factor assumes the risk of non-payment by the debtor. If the
debtor fails to pay, the factor absorbs the loss.

3. Domestic factoring: Factoring for domestic transactions within a country.

4. Export factoring: Factoring for export transactions.

5. Reverse factoring: Factoring in which the buyer arranges the financing for the seller's
receivables.

6. Invoice discounting: The seller retains ownership of the receivables, and the factor provides
financing based on the value of the receivables.

The specific types of factoring available may vary by country and by financial institution.

Factoring in Some ASEAN Countries:

1.Myanmar: Factoring is a financial service that involves the purchase of accounts receivable by
a financial institution, known as a factor, to provide immediate cash to a business. Factoring can
be a useful tool for businesses in Myanmar to improve their cash flow and manage their working
capital. To operate factoring in Myanmar, we would typically follow these steps:

Establish a business entity: To provide factoring services in Myanmar, we will need to establish a
business entity and obtain the necessary licenses and permits. we may need to consult with a lawyer
or business consultant to determine the specific requirements for our business.
Identify potential clients: Once our business is established, we will need to identify potential
clients who could benefit from factoring services. These could be businesses that have a large
volume of accounts receivable, slow-paying customers, or a need for immediate cash.
Conduct due diligence: Before purchasing accounts receivable from a client, we will need to
conduct due diligence to ensure that the invoices are valid and that the client has a good credit
history. We may also want to verify that the client's customers are likely to pay their invoices on
time.
Purchase accounts receivable: Once we have identified a potential client and conducted due
diligence, we can purchase their accounts receivable at a discount. The client receives immediate
cash, and we assume the risk of collecting payment from their customers. Collect payment: After
purchasing the accounts receivable, we will need to collect payment from the client's customers.
Depending on the terms of the factoring agreement, we may be responsible for all or part of the
collection process. Repeat the process: Once we have collected payment on the accounts
receivable, we can repeat the process with new clients.

2.Indonesia: Factoring is regulated by Bank Indonesia and is a common financing option for
businesses to improve cash flow. There are several types of factoring available in Indonesia,
including:
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• With recourse factoring: The factor does not assume the risk of non-payment by the debtor,
and the seller retains the risk.
• Export factoring: Factoring for export transactions.
3. Malaysia: Factoring is regulated by Bank Negara Malaysia, and it is a popular financing option
for small and medium-sized enterprises (SMEs). The types of factoring available in Malaysia
include:
• Recourse factoring: The factor does not assume the risk of non-payment by the debtor, and
the seller retains the risk.
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• Domestic factoring: Factoring for domestic transactions.
4.Philippines: Factoring is regulated by the Bangko Sentral ng Pilipinas and is primarily used for
short-term financing needs. The types of factoring available in the Philippines include:
• Domestic factoring: Factoring for domestic transactions.
• Export factoring: Factoring for export transactions.
• Reverse factoring: Factoring in which the buyer arranges the financing for the seller's
receivables.
5.Singapore: Factoring is regulated by the Monetary Authority of Singapore, and it is commonly
used by businesses to improve cash flow. The types of factoring available in Singapore include:
• Recourse factoring: The factor does not assume the risk of non-payment by the debtor, and
the seller retains the risk.
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• Invoice discounting: The seller retains ownership of the receivables, and the factor provides
financing based on the value of the receivables.
6. Thailand: Factoring is regulated by the Bank of Thailand, and it is commonly used by
businesses to improve cash flow. The types of factoring available in Thailand include:
• Recourse factoring: The seller retains the risk of non-payment by the debtor.
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• Domestic factoring: Factoring for domestic transactions.
 • Export factoring: Factoring for export transactions.
7. Vietnam: Factoring is regulated by the State Bank of Vietnam, and it is a growing industry in
the country. The types of factoring available in Vietnam include:
• Recourse factoring: The seller retains the risk of non-payment by the debtor.
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• Domestic factoring: Factoring for domestic transactions.
• Export factoring: Factoring for export transactions.
8. Cambodia: Factoring is not yet well-established in Cambodia, but it is a growing industry. The
types of factoring available in Cambodia include:
• Recourse factoring: The seller retains the risk of non-payment by the debtor.
• Non-recourse factoring: The factor assumes the risk of non-payment by the debtor.
• Domestic factoring: Factoring for domestic transactions.
9. Laos: Factoring is not yet widely used in Laos, but it is starting to gain traction as a financing
option for businesses. The types of factoring available in Laos include
• domestic factoring
• export factoring.

Factoring in other countries:

United States: Factoring is used in the United States, and it is regulated by the Uniform
Commercial Code (UCC) Article 9. The UCC provides a legal framework for factoring
transactions and sets rules for the rights and obligations of the parties involved.
United Kingdom: Factoring is widely used in the United Kingdom, and it is regulated by the
Financial Conduct Authority (FCA). The FCA regulates factoring companies and requires them to
comply with strict rules on transparency and customer protection.
European Union: Factoring is used in most European Union (EU) countries, and it is regulated
by the EU Factoring Regulation. The regulation sets out rules for factoring transactions, including
the rights and obligations of the parties involved.
Brazil: Factoring is a popular financing option in Brazil, and it is regulated by the Brazilian Central
Bank. The Central Bank sets rules for factoring companies and requires them to obtain a license
to operate.
China: Factoring is used in China, and it is regulated by the People's Bank of China. The People's
Bank of China sets rules for factoring companies and requires them to comply with strict
regulations on capital adequacy, risk management, and transparency.
India: Factoring is used in India, and it is regulated by the Reserve Bank of India (RBI). The RBI
regulates factoring companies and requires them to comply with strict rules on capital adequacy,
risk management, and customer protection.

The laws and regulations governing factoring in Myanmar

Factoring is a financial service that involves the purchase of accounts receivable from a business
by a factoring company, which then assumes responsibility for collecting the debts owed by the
customers of the business. In Myanmar, factoring is regulated by the Central Bank of Myanmar
(CBM) under the Financial Institutions Law (FIL) and the Central Bank of Myanmar Law.
Here are some of the laws and regulations that govern the operation of factoring in Myanmar:
Financial Institutions Law (FIL): The FIL is the primary legislation governing the operation of
financial institutions in Myanmar, including factoring companies. The FIL requires all financial
institutions to obtain a license from the CBM before commencing operations.
Central Bank of Myanmar Law: The Central Bank of Myanmar Law provides the legal
framework for the CBM to regulate and supervise financial institutions, including factoring
companies. Regulations on the Licensing and Supervision of Factoring Companies: The CBM
has issued regulations specifically for the licensing and supervision of factoring companies.
These regulations cover the application process for a factoring license, capital requirements, risk
management, and reporting requirements.
Anti-Money Laundering Law: Factoring companies in Myanmar are required to comply with the
Anti-Money Laundering Law, which requires financial institutions to implement measures to
prevent money laundering and terrorism financing. Foreign Exchange Management Law:
Factoring companies in Myanmar must comply with the Foreign Exchange Management Law,
which governs foreign exchange transactions in the country.
Taxation Laws: Factoring companies are subject to taxation under the Income Tax Law and the
Commercial Tax Law.
It is important for factoring companies operating in Myanmar to comply with all applicable laws
and regulations to ensure that they operate legally and avoid potential legal and financial
penalties.

Factoring Companies operating in Myanmar

The factoring companies which provide various services, including domestic and international
factoring, invoice financing, and supply chain financing are mentioned below. Factoring
companies in Myanmar play an important role in providing working capital to businesses and
supporting the growth of the country's economy.
KBZ MSME Factoring: KBZ MSME Factoring is a subsidiary of KBZ Bank, one of the largest
commercial banks in Myanmar. The company provides factoring services to small and medium-
sized enterprises (SMEs) in Myanmar.
Myanmar Oriental Bank Factoring: Myanmar Oriental Bank Factoring is a subsidiary of
Myanmar Oriental Bank, a commercial bank in Myanmar. The company provides factoring
services to businesses in Myanmar, including SMEs and large corporations.
Asia Green Development Bank Factoring: Asia Green Development Bank Factoring is a
subsidiary of Asia Green Development Bank, a commercial bank in Myanmar. The company
provides factoring services to businesses in Myanmar, including SMEs and large corporations.
Co-operative Bank Factoring: Co-operative Bank Factoring is a subsidiary of Co-operative Bank,
a commercial bank in Myanmar. The company provides factoring services to businesses in
Myanmar, including SMEs and large corporations.
Yoma Bank Factoring: Yoma Bank Factoring is a subsidiary of Yoma Bank, a commercial bank
in Myanmar. The company provides factoring services to businesses in Myanmar, including
SMEs and large corporations.

How to operate Factoring in Myanmar

Factoring is a financial service that involves the purchase of accounts receivable by a financial
institution, known as a factor, to provide immediate cash to a business. Factoring can be a useful
tool for businesses in Myanmar to improve their cash flow and manage their working capital. To
operate factoring in Myanmar, we would typically follow these steps:
Establish a business entity: To provide factoring services in Myanmar, we will need to establish a
business entity and obtain the necessary licenses and permits. we may need to consult with a
lawyer or business consultant to determine the specific requirements for our business.
Identify potential clients: Once our business is established, we will need to identify potential
clients who could benefit from factoring services. These could be businesses that have a large
volume of accounts receivable, slow-paying customers, or a need for immediate cash.
Conduct due diligence: Before purchasing accounts receivable from a client, we will need to
conduct due diligence to ensure that the invoices are valid and that the client has a good credit
history. We may also want to verify that the client's customers are likely to pay their invoices on
time.
Purchase accounts receivable: Once we have identified a potential client and conducted due
diligence, we can purchase their accounts receivable at a discount. The client receives immediate
cash, and we assume the risk of collecting payment from their customers.
Collect payment: After purchasing the accounts receivable, we will need to collect payment from
the client's customers. Depending on the terms of the factoring agreement, we may be
responsible for all or part of the collection process. Repeat the process: Once we have collected
payment on the accounts receivable, we can repeat the process with new clients.

Factoring is important is in Legal framework in countries

Factoring is important in the legal framework of countries because it involves the transfer of
ownership of receivables from the seller to the factor. This transfer of ownership requires legal
documentation and protection to ensure that the transfer is valid and enforceable.
Furthermore, the legal framework provides guidelines for the rights and obligations of the parties
involved in a factoring transaction, such as the seller, factor, and debtor. This includes
regulations on the disclosure of information, fees and charges, and responsibilities for the
collection of payments.
In addition, the legal framework helps to establish the legal enforceability of factoring
agreements and provides a framework for the resolution of disputes that may arise between the
parties involved in the transaction.
Overall, the legal framework for factoring provides a transparent and secure environment for
businesses to access financing options and improve their cash flow, while also protecting the
interests of all parties involved in the transaction.

Advantages and Disadvantages of factoring:

Advantages:
Improved cash flow: Factoring provides businesses with quick access to cash, which can help
improve their cash flow and fund their operations. Reduced risk: Factoring allows businesses to
transfer the risk of non-payment by debtors to the factor, which can help reduce the risk of bad
debts. Access to credit: Factoring can help businesses that may not have strong credit profiles to
access financing. Sales ledger management: Factoring can also help businesses manage their
sales ledger by outsourcing the administration and collection of receivables.
Disadvantages:
Cost: Factoring can be more expensive than traditional bank financing due to higher fees and
interest rates. Loss of control: Factoring involves the transfer of ownership of receivables to the
factor, which means that the business may lose control over the management of their receivables.
Image: Factoring may be perceived negatively by some customers or investors, which could
impact the business's image or reputation.
Confidentiality: Factoring may require businesses to disclose sensitive financial information to
the factor, which could compromise their confidentiality.
Reference:
Indonesia Factoring Association, https://www.factoring.co.id/en/
Factoring Association of Malaysia, http://www.factoring.org.my/
Factoring Association of the Philippines, Inc., https://fapi.com.ph/
Thai Factoring Association, https://www.thaifactoring.org/
Vietnam Banks Association, https://vba.org.vn/
Asian Development Bank, https://www.adb.org/

Factoring Industry Worldwide - Factors Chain International: https://fci.nl/en/factoring-industry

Factoring Regulation in Europe - European Commission: https://ec.europa.eu/info/law/payment-

services-psd-2-directive-eu-2015-2366/factoring-regulation-europe_en

Factoring in Brazil - Brazilian Central Bank:

https://www.bcb.gov.br/en/financialstability/factoring
https://www.fidas.org.sg/
International Chamber of Commerce. (2016). Factoring and the Legal Framework.
Global Trade Review. (2019). Factoring - an important legal framework.