Companies are gearing up for trade credit insurance covers, for which the guidelines come into effect from November 1. This is expected to improve liquidity for micro, small and medium enterprises (MSMEs).
A number of insurance companies are said to be working on the draft agreements and products.
“The new trade credit insurance (TCI) guidelines have come at the right time. The Factoring Regulation (Amendment) Act, 2021 allows NBFCs [non-banking financial companies] as factors. Once the RBI [Reserve Bank of India] amends the TReDS [trade receivables discounting system] guidelines to allow an NBFC as a financier on the platform, it will increase liquidity and financiers will have a risk-sharing partner,” said Ketan Gaikwad, Managing Director and CEO, Receivables Exchange Of India Limited (RXIL).
RXIL had earlier initiated a TCI-backed transaction with Tata AIG General Insurance Company as the insurer and ICICI Bank and Yes Bank as financiers in a sandbox environment.
Gaikwad said RXIL has applied to the RBI for approval and will also seek board approval soon.
The Insurance Regulatory and Development Authority of India had in September announced guidelines for TCI cover to enable general insurance companies to offer it to suppliers as well as licensed banks and other financial institutions to help businesses manage country risk, access new markets and manage the non-payment risk associated with the trade financing portfolio.
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General insurers can also offer TCI with customised covers for small and medium-sized enterprises (SMEs) and MSMEs.
Arun Poojari, CEO, Cashinvoice, a digital supply chain finance marketplace, noted that several pilots were on for these covers.
“There is a testing with an insurance company on the Cashinvoice platform. By nature, this is a very powerful proposition and bound to be accepted in a big way,” he said.