Avarina Miller, svp at Demica, answers SCI's questions

Q: How and when did Demica become involved in structured finance?
A: We have been around since 1992 and we have been involved in structured finance since we started. What we do is provide automated solutions for accounts receivables-based trade financing, which involves setting up and running the technology.

Before joining Demica, I was on the banking side. I started out in the City working for Bankers Trust and then National Home Loans, as it was then, which was one of the first companies to securitise assets in the early days of the market. Then I worked at JPMorgan in the equities group, so I've followed a slightly unconventional route to get here.

Q: What are your key areas of focus today?
A: We are focusing on finance linked to trade receivables or trade payables. Our tagline is 'intelligently working capital' because the finance structures we enable and support are all related to optimising working capital.

There are other things we would like to do more of. Short term, high-turnover assets are where our sweet spot is, but for the most part we focus on supporting and enabling the financing of trade receivables.

Q: Which market constituent is your main client base?
A: On the corporate side, our customers could be in any sector or industry. That said, by the nature of trade receivables, it tends to be the business-to-business sectors rather than retail.

Our corporate clients tend to be multinational or mid-sized companies. The services we provide help companies which are either small and do not have the resources, or they are very large or multi-national companies with multiple operations systems who need to generate centralised, consolidated sales or purchase ledger information quickly and efficiently. And for supply chain finance, while the buyers tend to be largish, their suppliers can be of all sizes.

Geographically we are weighted a bit towards Europe, but we have clients around the globe. Our clients are both corporates and financial institutions, because the corporates are the ones whose assets are being financed, while it is the financial institutions that are providing the credit and liquidity in the programmes we support.

On the financial institutions side, they tend to be commercial banks or investment banks and there can also be an insurance element, and occasionally hedge funds. One way or another, the financial institutions we work with are involved in trade receivables-based lending.

Trade receivables have been spanned by a number of bank product silos, but the distinctions between the silos has started to blur. The underlying asset and risk is fundamentally the same, although there is a slightly different approach depending on how you fund a portfolio.

Q: How do you differentiate yourself from your competitors?
A: A lot of the time our competition is an in-house solution, either within a corporate or within a financial institution. In those cases, we offer greater specialisation; we have dedicated service and technology that is our sole focus.

Because we are not distracted by other priorities, we are more focused and so - we would argue - better. We can offer more consistent, specialised, customised, well planned and well executed service and support.

Elsewhere, we can also customise where other technology solution providers either will not - because it does not make sense for their business model, if, for example, they are trying to create an industry standard - or cannot because their technology is not as flexible. Our solution meets industry standards but is highly customisable to meet individual business requirements and models.

On top of that, we also tend to offer the most automation. That is to say, we try to find ways to reduce the amount of manual intervention to minimise operational risk and administration for our customers. We offer the best and the most automation, although that said there is of course a human element to all of this and we aim to have top quality and expertise on the personnel side too.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: The main challenge is a case of who is doing it and what the funding structures look like. That may change. For us, that means we have to stay on top of where the financing is being originated and how it is being structured.

The current environment certainly provides opportunities for us, though. The thing about trade receivables funding is it has been around forever and I am confident it will be around for a long time in the future.

The high yield market was booming a few weeks ago and is now basically closed. But that creates opportunities for accounts receivables-based deals, especially if they are serving sub-investment grade corporates, which is an area we specialise in.

If liquidity dries up for one market group, say mid-sized companies, then supply chain finance is a perfect solution because it shifts liquidity from the buyer link of a supply chain that has better access to competitively priced liquidity into the supplier links in the supply chain whose position in the physical supply chain is key but whose access to funding is more limited. These are the sorts of circumstances in which trade receivables funding is the perfect solution.

It is a time of transformation and adjustment for the banking world and I think a lot of banks are having to spend an awful lot of time just getting to grips with the new regulatory environment. In that context, trade receivables are simple, straight-forward and 'self-liquidating', in the jargon, so attractive as a basis for financing for lenders and borrowers and will continue to be a key tool to finance and support trade.

Q: What major developments do you need/expect from the market in the future?
A: I think we are in for volatile times. Volatility is tough and I think people are a little bit easily spooked at the moment. That said, that is an environment in which there is increased demand to capture and monitor data and create transparency.

That is the direction we are going in. Clearly that is good for Demica.

JL