Union Cabinet approved to set up 500 crore rupees Credit Guarantee Fund for factoring for MSME units

Union Cabinet approved to set up of 500 crore rupees Credit Guarantee Fund for factoring of Micro, Small and Medium Enterprises.

Created On: Dec 11, 2014 19:04 ISTModified On: Dec 11, 2014 19:22 IST

Union Cabinet on 10 December 2014 approved to set up of 500 crore rupees Credit Guarantee Fund for factoring of Micro, Small and Medium Enterprises (MSME) units with an aim to promote factoring without recourse.

The factoring will provides liquidity to MSMEs and facilitates collection of receivables.

Main feature of the proposed Credit Guarantee Fund
• Department of Financial Services (DoFS) will be the Settlor and shall establish a Fund for guaranteeing factored debts.
• The Fund shall be under National Credit Guarantee Trustee Company (NCGTC).
• The NCGTC will have a Management Committee consisting of Secretary, DoFS as the ex-officio Chairman.
• The convener of the Management Committee will be nominated by the Settlor. The Management Committee shall be responsible for all policy aspects of the Fund.
• The fund provides a credit guarantee cover for a maximum of 50 percent of factored debt. To start with, only transactions covered under the Factoring Regulation Act, 2011 will be included.
• The guarantee fee chargeable from the MLIs shall not exceed 0.75 percent per quarter of the guaranteed factored debts for the amount of guarantee cover.
• Claims shall be filed by MLIs with the proposed Fund, as per guidelines prescribed by the Management Committee.
• The actual interest rate to be charged from the MSMEs will be left to Factors.

About Factoring
Factoring is a financing arrangement for suppliers by making pre-payments against invoices.
The Factoring Regulation Act, 2012 provides the legal framework for factoring and Reserve Bank of India (RBI) already has issued guidelines in which insurance is excluded for factoring. The gross factoring of India is below 20000 crore rupees.

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