“We will unveil further measures, including trade credit insurance and promotion of the Account Aggregator framework to support credit access,” said an official.
Easier flow of credit is crucial for reviving India’s goods exports which fell for the second straight month in December, declining nearly 1% from a year earlier.
A second official said various models of export factoring services are being examined, including reverse factoring. “We will hold discussions with other stakeholders, including the Factoring Association of India, to come up with different mechanisms to address any issues,” he added.
Under existing mechanisms, a bank or specialised financial firm buys an exporter’s short-term foreign accounts receivable for cash at a discount from the face value and assumes the risk on the pay ability of the foreign buyer, improving the seller’s liquidity position.
Working Capital Needs
As per the latest credit guarantee scheme, loans up to ₹20 crore per borrower will be guaranteed for export-oriented units (EOUs) of MSMEs as well as units supporting import substitution. Credit facility will be offered on working capital requirements of the borrower as well as expansion projects in the form of term loans.
“The government has allowed lenders to follow board-approved policies on both interest rates and loan limits. With the backing of a credit guarantee, the interest rates on such sanctions should be at least 50-100 basis points lower based on borrowers ratings as well,” said a bank executive.
The ministries of commerce and industry, finance, and MSME will work on sectoral and ministerial targets to offer collateral-free pre-packaging loans sanctioned for financing the purchase, manufacturing, or packing of goods prior to shipment. Packing credit can also be extended as working capital assistance.
“Factoring is a good instrument, but the cost and condition of factoring and denial of interest equalisation benefits also need to be looked at to ensure ease of doing business for exporters,” said Ajay Sahai, director general, Federation of Indian Export Organisations.
Currently, Indian exporters use factoring services offered by Singapore as they are 10-11% cheaper than India.
At a later stage, with the stabilisation of the credit guarantee scheme, the government has proposed to include units facilitating import substitution to avail these benefits.
