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Around the world, factoring is a growing source of external financing for corporations and small and medium-size enterprises (SMEs). What is unique about factoring is that the credit provided by a lender is explicitly linked to the value of a supplier's accounts receivable and not the supplier's overall creditworthiness. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring may be particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Empirical tests find that factoring is larger in countries with greater economic development and growth and developed credit information bureaus. In addition, the author finds that creditor rights are not related to factoring. The author also discusses reverse factoring, which is a technology that can mitigate the problem of borrowers' informational opacity in business environments with weak information infrastructures if only receivables from high-quality buyers are factored. She illustrates the case of the Nafin reverse factoring program in Mexico and highlights how the use of electronic channels and a supportive legal and regulatory environment can cut costs and provide greater SME services in emerging markets.

Bank --- Banking Law --- Bankruptcy --- Banks and Banking Reform --- Collateralization --- Collection Services --- Cred Credit Risk --- Debt Markets --- Emerging Markets --- Enterprises --- Factoring --- Finance --- Finance and Financial Sector Development --- Financial Intermediation --- Financial Literacy --- Financial Systems --- Interest --- Law and Development --- Laws --- Lending --- Loans --- Private Sector Development --- Property --- Risk --- Services --- Value --- Working Capital

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This paper explores economic informality and how it relates to digital financial inclusion. It focuses specifically on the potential role that digital financial services-including those accessed through mobile phones and the internet can play in encouraging businesses to formalize their operations. The data show wide variations in the extent of informality as well as the financial inclusion of informal business owners. The paper finds that digital financial services can make it easier for informal firms to register and operate as a formal business, while also creating synergies between individual reform efforts. For example, companies that use a digital payroll system can easily make pension contributions when online platforms are available. Digital financial transactions also make it easier for governments to enforce laws and regulations, including tax collection. However, there are several important caveats. It is not clear that formalizing small transactions is an effective way to increase tax collection. As the digital economy grows and countries seek to curb informality, policymakers should tailor their programs to the needs and realities of different groups of enterprises.

E-Business --- E-Finance and E-Security --- Finance and Financial Sector Development --- Financial Literacy --- Microenterprises --- Mobile Money --- Private Sector Development

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The authors study firm dynamics using a novel database of all formally registered firms in Cote d'Ivoire from 1977 to 1997, which account for about 60 percent of gross domestic product. First, they examine entry and exit patterns and the role of new and exiting firms versus incumbents in job creation and destruction. They find that while the rate of job creation at new firms is quiet high-at 8 percent on average-the number of jobs added by new firms is small in absolute terms. Next, they examine survival rates and find that the probability of survival increases monotonically with firm size, but manufacturing and foreign-owned firms face higher likelihoods of exit compared with service oriented and domestically owned firms. They find that higher growth of gross domestic product increases the probability of firm survival, but this is a broad impact with no firm size disproportionately affected. In robustness checks, they find that after 1987 size is no longer a significant determinant of firm survival for new entrants, suggesting that the operating environment for firms changed. Finally, they find that trade and fiscal reform episodes raised the probability of firm exit and attenuated the survival disadvantages faced by smaller firms, but exchange rate revaluation and pro-private sector reforms did not significantly lower the likelihood of exit.

Business Incorporation --- Economic Growth --- Economic Theory & Research --- Environmental Economics & Policies --- Finance and Financial Sector Development --- Labor Markets --- Microfinance --- Net Employment --- Private Sector Development --- Regulatory Barriers --- Small Scale Enterprise