Establishment of Credit Guarantee Funds for Factoring

Published By : Admin | December 10, 2014 | 22:22 IST
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The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval to establish a Credit Guarantee Fund for Factoring for MSME units.

The corpus of the Fund is Rs.500 crore. Assuming a leverage of 5 times of the corpus, gross factoring transactions would cover Rs.20,000 crore per annum at the end of fifth year. The corpus is estimated to be Rs.492 crore at the end of fifth year. In third year of operations, a mid-term review of the Fund may be undertaken and propose modifications if any.

The goal is to promote "factoring without recourse". The mechanism would be:

i. Governing structure - DoFS will be "the Settlor" and shall establish a Fund for guaranteeing factored debts. The Fund shall be under "National Credit Guarantee Trustee Company (NCGTC). It will have a Management Committee consisting of Secretary, DFS as the ex-officio Chairman. The convenor of the Management Committee will be nominated by the Settlor. The Management Committee shall be responsible for all policy aspects of the Fund.

ii. Coverage - Credit guarantee cover for a maximum of 50 percent of factored debt will be provided under the Fund. To start with, only transactions covered under the Factoring Regulation Act, 2011 are to be included.

iii. Guarantee Fee - The guarantee fee chargeable from the MLIs shall not exceed 0.75 percent per quarter of the guaranteed factored debts for the amount of guarantee cover.

iv. Filing of claims by factors - Claims shall be filed by MLIs with the proposed Fund, as per guidelines prescribed by the Management Committee.

v. Interest rate - The actual interest rate to be charged from the MSMEs will be left to Factors.

vi. Modifications to the parameters under the scheme - The key elements of the structure have been proposed based on very preliminary data in the sector. These may require to be revisited and will be done with the approval of FM.

Factoring is a financing arrangement for suppliers by making pre¬payments against invoices. This provides liquidity to MSMEs and facilitates collection of receivables. India`s factoring volume is below Rs.20,000 crore. The Factoring Regulation Act, 2012 provides the legal framework for factoring. RBI has issued guidelines. However, there is no insurance for factoring.

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President of the 77th Session of United Nations General Assembly H.E. Mr. Csaba Korosi calls on PM Narendra Modi
January 30, 2023
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Mr. Csaba Korosi lauds India’s transformational initiatives for communities, including in the area of water resource management and conservation
Mr. Csaba Korosi speaks about the importance of India being at the forefront of efforts to reform global institutions
PM appreciates PGA’s approach based on science and technology to find solutions to global problems
PM emphasises the importance of reforming the multilateral system, including the UN Security Council, so as to truly reflect contemporary geopolitical realities

The President of the 77th Session of the United Nations General Assembly (PGA), H.E. Mr. Csaba Korosi called on Prime Minister Shri Narendra Modi today.

During the meeting, Mr. Csaba Korosi lauded India’s transformational initiatives for communities, including in the area of water resource management and conservation. Acknowledging India’s efforts towards Reformed Multilateralism, Mr. Csaba Korosi underscored the importance of India being at the forefront of efforts to reform global institutions.

Prime Minister thanked Mr. Csaba Korosi for making India his first bilateral visit since assuming office. He appreciated Mr. Csaba Korosi’s approach based on science and technology to find solutions to global problems. He assured Mr. Csaba Korosi of India’s fullest support to his Presidency initiatives during the 77th UNGA including the UN 2023 Water Conference.

Prime Minister emphasised the importance of reforming the multilateral system, including the UN Security Council, so as to truly reflect contemporary geopolitical realities.