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Small and medium enterprises will benefit from the Factoring Regulation Act, 2012, the Small Industries Development Bank of India has said.
Factoring can help micro, small and medium enterprises to do business in new ways, said Mr N.K. Maini, deputy managing director, SIDBI. He was speaking at a factoring awareness seminar for MSME manufacturers.
These units supply their products on credit terms to domestic purchasers. They can now get funds based on the strength of the transaction between the client and its debtor rather than on collaterals.
Scope for new products
Factoring organisations would bring in new products. New NBFCs could register themselves with the Reserve Bank to take up factoring.
Before the Act was passed, the parties faced high stamp duty, no legal recourse on the buyer and limited legal recourse on the client.
There was no central registry for creating charge; it made them vulnerable to frauds such as double financing and legal remedy for recovering debts was slow.
Worldwide, factoring increased from €724 billion in 2002 to €2015 billion in 2011. Asia’s factoring volume is around 25 per cent of this. National share in the Asian factoring business is just 0.6 per cent.
Growing at 11 per cent a year, the 30-million-strong MSME sector is the second largest employer at seven crore jobs. It contributes 45 per cent of the manufacturing output and 40 per cent of exports.
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