More NBFCs to be part of factoring market

India’s minister of finance, Nirmala Sitharaman, said amendments in the factoring law would enable 9000 non-banking financial companies (NBFCs) to be part of factoring market, thus improving the flow of cash to small scale businesses. the amendments in he law were approved by Rajya Sabha on 29th July’ 2021.

Under factoring, an  entity (for instance, a small scale business) can sell its receivables to a third party (for eg. bank or NBFC) in return to get immediate funds. Thus, the factor market helps firm to meet its working capital requirements.

Access to greater level of liquidity and working capital will prove to be a great difference for the Micro, Small and Medium Scale Enterprises (MSMEs) with new bill allowing more NBFCs to participate in the factoring market. Currently, only 7 NBFCs engage in factoring business. Factoring market is only 0.2% of GDP in India, far behind its counter part economies such as China (3.2%) and Brazil (4.1%)