The Union Cabinet, chaired by Prime Minister Narendra Modi, has given 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". 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.