Access to credit for companies is one of the major issues in financing our economies. This observation is unanimous among entrepreneurs, young graduates with projects, public authorities, investors, as well as among financial professionals. 

Without dwelling on the main causes of such a difficulty faced by companies operating within the WAEMU and in particular SMEs – SMIs, we try to  provide an informed opinion on the major innovation that the monetary and regulatory authority namely the BCEAO, the supervisory authority of the regional financial market, namely crepmf (Conseil Régional de l'Epargne Publique et des Marchés Financiers) and BOAD (West African Development Bank) have undertaken to expand the range of financial instruments available at the level of the common financial market. This lever, which is the securitization of assets, could serve as an alternative to the traditional method of financing companies and thus initiate a new dynamic of the WAEMU financial market. 

Faced with the problem of access to finance from the banking sector for a significant segment of companies due to the constraints related to the security required in terms of granting credit, the policies of banks in terms of risk management and the weight of the informal sector that plagues a fringe important of the productive sectors of our economies and particularly among SMEs – SMIs on the one hand ; 

On the other hand, in the face of the desire shown by the supervisory authorities to revitalize the Community financial market, which had once been limited to traditional financial products such as shares and bonds ; 

The WAEMU Council of Ministers through Regulation No. 02/2010/CM/UEMOA of 30 March 2010 on Common Funds for the Securitization of Receivables and Securitization Operations in the WAEMU has issued

eligible the use of tritrisation as an additional lever to existing mechanisms in the field of structured corporate finance.

Indeed, the motivation to use external financing, that is to say, other than equity, presents different degrees and challenges depending on whether it is a company that has begun its operating phase, an SME – SMI in the growth phase or a project leader who is struggling to realize to develop your ideas into a viable and structured project. 

The enormous  financing needs for multiple reasons and for the most part those inherent in the growth requirements of the company, innovation, the conquest of new markets, or more simply the financing of the need for operating working capital, investments to maintain or renew the production tool are all requests to be satisfied in our economies. We believe that it is legitimate to explore the path of asset securitization in order to consistently resolve the issues raised above.

1. What is securitisation ?

Securitisation remains primarily a cash operation. It is a financial technique that involves transforming illiquid assets into liquid and easily tradable securities. It makes it possible to transfer assets or the corresponding credit risks in a structured form to third-party investors.

While the initial objective of the securitization of assets within the WAEMU was oriented towards the promotion of mortgage loans, in particular financing by banks, housing and social housing; it has been extended to other assets that companies could hold, in particular trade receivables. In the pioneer financial markets of this technique, in this case in the United States of America and Europe, the scope of securitization operations has expanded, in terms of assets to non-mortgage claims (credit cards, car credit, leasing credit, project financing, offshore revenues ...), and in terms of sellers other than banks , companies, insurance companies,  States and local authorities. 

 2. Who can securitize their assets within the WAEMU ?

First and foremost, banks and credit institutions. States and companies in any sector that are legally constituted may also use the securitisation of their assets. However, for companies, we believe that a prerequisite in terms of the quality of financial and accounting information, the degree of formalization and animation of the internal control system and the governance of the entity selling the assets to be securitized remains a prerequisite on which it would be necessary to agree. 

At Community level, the authorities responsible for the regulation and supervision of financial markets have placed particular emphasis on the safeguards to be backed up against the claims to be securitised. On the other hand, the attributes of the entities involved in the securitisation mechanism are very explicit, in particular with regard to the management of securitised assets, the recovery of debts, the depositary of the securities and the controls to be exercised over the transaction, namely from its initiation to the full payment of the investors of the securities. Securities issued, i.e. until the liquidation of the Common Fund for the Securitisation of Receivables set up for this purpose.

3. The benefits of securitisation

The advantages of securitisation vary depending on whether it is a credit institution (a Bank) or a company. 

For companies, securitisation has the following advantages:- It makes it possible to liquidate the receivables item. The first of the interests of securitisation for companies is therefore to find more advantageous sources of financing than discounting, factoring, and therefore to widen their range of short-term refinancings;- Securitisation allows companies to have better access to the capital market. This includes for larger companies to access the capital market under better conditions, via structures with better signature qualities. The arrangement leads to the isolation in the balance sheet of the company a well-defined block of receivables (subset of the customer item for example), which will then be transferred to an ad hoc structure. The use of this technique allows the company to secure financing on terms that reflect the quality of the pool of assets sold and to free itself from the market's opinion of its own credit quality;- Securitization offers a better balance sheet. It improves the company's liquidity ratios. The removal from the balance sheet of a block of receivables makes it possible to reduce the need for working capital, to improve the liquidity of the asset, and consequently to avoid being subject to the mistrust of lenders in the short term ;- Debt and debt ratios Solvency are all equally favored. Securitization makes it possible as a refinancing tool to raise funds (liquidity) without increasing debt. The weight of debt in relation to equity is an essential key to assessing the solvency of a company. In good financial orthodoxy, the risk of insolvency is all the greater as the company suffers from excessive indebtedness associated with a lack of equity , which is the buffer that supports the debt and absorbs  losses in case of difficulty. It is in this respect that securitisation, as a substitute for additional indebtedness, can be regarded as a factor improving the solvency of the transferring undertaking.

For a credit institution that " securitizes " its receivables, the main advantages are as follows :- Securitization makes it possible to improve the management of credit risk through the solvency ratio. Indeed, in the context of its current activity of granting credit, a permanent monitoring of the risk of insolvency of its customers is of imperative necessity. The bank may feel the need to free itself from some of its loans, and therefore from the credit risk associated with them, to satisfy a solvency constraint.- Securitization makes it possible to improve the management of liquidity risk. Being able to remove assets from a balance sheet and convert claims that are not intended to be tradable on a secondary market into liquidity improves the liquidity situation of the transferring institution. Securitisation offers credit institutions the advantage of diversifying their sources of refinancing by accessing the market under a signature other than their own.- Securitisation also makes it possible to improve the management of interest rate risk. The inevitable mismatches between its jobs and resources and in the particular case of loans granted to companies and households, interest rate risk can be exacerbated in particular by waves of early repayments. It allows the credit institution to free itself from the interest rate risk inherent in the claims to be securitised.

In summary, as an easy source of refinancing for credit institutions, securitization allows a better balance sheet balance for the transferring company and is an important lever that should be used to increase the sources of financing for companies within the WAEMU. 

However, it is not a risk-free financial instrument. Securitization was one of the causes of the financial crisis facing the United States of America and Europe. Mortgage-backed loans granted to households with low credit due to the fall in very low interest rates recorded  in the early 2000s in the United States of America on the one hand, and the bursting in 2006 – 2007 of the real estate " bubble " on the other hand, were the triggers of the " subprime " crisis. This situation has been exacerbated by the complexity of securitization due to its success as an important lever in international financial markets. This concern has been largely taken into account by the authorities in charge of the regulation and supervision of financial markets within the WAEMU.

4. The stakeholders in a securitization operation within the WAEMU ? 

Regulation No. 02/2010/CM/UEMOA on the basis of the conclusions of the feasibility study on the evaluation of the potential of the mortgage market and securitization of assets within the WAEMU and the recommended target architecture, The WAEMU Council of Ministers through the regulation cited above has identified the stakeholders in a securitization as well as their attributes :- A Common Fund for the Securitization of Receivables (FCTC), vehicle dedicated to the securitization operation,  which is a co-ownership whose role is to acquire receivables and their accessories. It issues units and debt securities representing these claims. The FCTC is co-founded by the FCTC management company and the depositary of its assets. The FCTC is not a company, has no legal personality and the provisions relating to joint ownership and joint ventures are not applicable to it;- An FCTC is subject to the approval of the Regional Council for Public Savings and Financial Markets (CREPMF) in accordance with the provisions of Instruction No. 43/2010 ;-  An FCTC is represented by the management company. The latter strives to achieve its management objective by acquiring receivables and to conclude hedging contracts in compliance with the specific provisions applicable;- The FCTC Management Company is a commercial company whose exclusive purpose is to ensure the management of one or more FCCTs . It is subject to the approval of the Regional Council of Public Savings and Financial Markets (CREPMF); - The Depositary of the assets of the FCTC (co-founder) is the institution (bank) responsible for the custody of the assets of the FCTC. He holds the cash and receivables acquired by the FCTC. He intervenes and ensures the regularity of the decisions of the management company according to the modalities provided for by the crepmf instruction;- Banks through their roles as assignors of mortgage claims or debt manager may also be responsible for recovery on behalf of the FCTC within the framework of an agreement signed with the management company of the FCTC ;- The Rating Agency is a commercial company whose main activity is to assess the quality of the transferor's signature;- The Arrangers are the entities responsible for the structuring of the securitisation operation. They require the authorization of the Société de Gestion du FCTC and the CREPMF ;- The BCEAO, the Banking Commission, the CREPMF are the supervisory and regulatory authorities of securitization operations carried out within the WAEMU.

5. Conclusion

The innovation that the BCEAO, CREPMF and BOAD have introduced into our Community economic and financial area is to be welcomed. It is then up to the rights holders (banks, companies, States, local authorities,...) to use it in full knowledge in order to increase their sources of financing and refinancing.

About the author  of the article 

Mr. Ousmane DIENG has acquired 17 years of professional experience in consulting and auditing. Former auditor and then Manager in the Consulting Department of Mazars in Senegal, Mr. DIENG founded the consulting firm INGENIOUS Partners Consulting specializing in strategy, Financial Consulting, entrepreneurship, organization, performance optimization, control and economy. 

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