India Exim Sets To Announce Export Factoring For MSMEs

According to the latest news, the Export-Import Bank of India (India Exim) is all set to introduce its export factoring program for MSMEs (micro and small to medium enterprises) this year to strengthen their liquidity and support non-payment risks.

When the scheme was approved by its board, the bank intended to carry out pilot transactions by the end of September, as per the statement given by N. Ramesh, India Exim deputy managing director.

Under the scheme of trade finance, the bank is going to purchase the invoices from the Indian exporters. It will result in the early payment to the exporters while the lender takes the responsibility for payment faults made by the overseas buyers who buy Indian exports. According to the bank, the risk of non-payment is increasing these days.

The factoring product/item will fall under the bank’s trade assistance, introduced earlier this year, according to which, the bank will stretch out credit lines to commercial banks to enable them to boost Indian exports, and also bear payment risks for commercial banks in India operating in the same niche.

The trade assistance program is to drive development in markets operating in Asia, Africa, and Latin America while the factoring program will only cover exports related operations for developed economies.

Ramesh states that the bank is probably going to at first just focus on extending the factoring program in scenarios where there is a well-established & long-term relationship between the Indian exporters and overseas buyers. But that “as we get confident enough, we may notice the situation, such as big corporations and established organizations”, although there will probably be trade insurance in place. This initiative towards supporting export finance will surely help Indian exporters.

Ramesh says, “I think it would be a productive initiative towards the development of MSMEs as there are many other support programs available for bigger-value Indian exports, but the ventures with smaller value are in danger.”

He expects a huge number of Indian exporters who could avail of the service once it is ready and running.

In meetings with the bank while the policy was being created, Indian exporters explained that they were dedicatedly waiting for factoring to be available for developed markets, for example, the UK and some EU nations, where open account trade used to have only one use which is in place of trade finance, and where payment periods are longer.

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Only after administrative changes in the past few years, the domestic factoring in India gained popularity. Ramesh explains that it means there have been some discrepancies in supply for export factoring products as well.

Earlier this year, the Reserve Bank of India (RBI) announced rules, following authoritative changes, created to improve the supply of domestic factoring products. The amendments include easing eligibility criteria for non-bank financial institutions willing to operate factoring operations in the nation.

India Exim’s export factoring program is introduced to encourage the Trade Receivables Discounting System, a platform laid out by the RBI to deliver domestic factoring by banks and other FIs in India.