The Factoring Regulation (Modification) Invoice, 2021 will broaden credit score amenities for small companies, and can assist them in accessing funds from 9,500 non-banking monetary firms (NBFC), Finance Minister Nirmala Sitharaman tweeted.
The amendments accredited by Rajya Sabha Thursday will give an impetus to the economic system by offering an environment friendly working capital cycle for micro, small and medium enterprises (MSMEs), Sitharaman stated.
The Invoice seeks to extend the variety of NBFCs providing factoring service to over 9,500 from from seven presently. Factoring is a transaction the place a enterprise sells its receivables from a buyer to a 3rd occasion or a ‘issue’ to get funds. Now all NBFCs can be permitted to undertake factoring enterprise and take part on Commerce Receivables Discounting System (TReDS) for discounting the invoices of MSMEs, Sitharaman stated.
The Invoice seeks to offer a powerful oversight mechanism for the factoring ecosystem, and can empower the Reserve Financial institution of India to make rules with respect to factoring enterprise, Sitharaman stated.
Whereas transferring the Invoice in Lok Sabha for approval, Sitharaman had stated the federal government has accepted the suggestions of the Standing Committee which had scrutinised the Invoice final yr.
The Standing Committee on Finance had instructed that finest world practices be adopted to deliver home factoring firms on a par with world friends and make credit score finance extra accessible to MSMEs.
Amending the Factoring Regulation Act, and altering the definition of “task”, “factoring enterprise” and “receivables”, will deliver them in consonance with worldwide definitions, Sitharaman stated.
The Factoring Regulation Act, 2011 was enacted for regulating the receivables to components, making provision for registration for doing factoring enterprise, and the rights of the events in a factoring contract.
There’s usually a delay in MSMEs getting fee towards their payments for supplying to numerous patrons.
This results in locking of working capital and hampering productive actions of MSMEs, the Parliamentary Committee had stated in its report. The amendments proposed by the federal government search to resolve these points and allow extra classes of NBFCs to undertake factoring enterprise, it had stated. Factoring credit score constitutes solely 2.6 per cent of whole formal MSME credit score in India. It’s estimated that solely 10 per cent of the receivable market is presently lined beneath formal invoice discounting mechanism, whereas the remainder is roofed beneath typical money credit score overdraft preparations with banks, the report had stated.