Friday, December 12, 2014: The Indian Cabinet today gave a green signal to set up a Rs 5,000 million Credit Guarantee Fund for factoring of MSME units. Factoring involves financial help for suppliers by giving them prepayment against invoices. It provides liquidity arrangements for MSMEs and also facilitates collection of receivables. The factoring volume of India is below 2,00,000 million.
An official noted after a meeting of the Cabinet chaired by PM Narendra Modi, “The corpus of the fund is Rs 5000 million. Assuming a leverage of five times of the corpus, gross factoring transactions would cover Rs 200,000 million per annum at the end of fifth year.”
The legal framework for factoring is abided by the Factoring Regulation Act, 2012. The guidelines have been signed by the RBI. However, it is given that there won’t be any insurance for factoring. As per the statement issued, “the Settlor” would be the department of financial services (DFS), who will establish the fund for guaranteeing factored debts.
The fund would be managed under the ‘National Credit Guarantee Trustee Company’(NCGTC). There will be a management committee consisting of Secretary, DFS as the ex-officio Chairman and it would be held responsible for all the policy aspects of the Fund.