India’s parliament has passed a new piece of legislation designed to help small and medium-sized businesses (SMBs) secure more working capital.
According to the country’s Tribune newspaper, the Factoring Regulation (Amendment) Bill was approved Thursday (July 29) in the Rajya Sabha, the upper house of parliament. The Lok Sabha, the lower house, passed the amendment on July 26.
The bill passed Thursday in the face of “protest and sloganeering by the opposition” the Tribune said.
The bill aims to help micro, small and medium-sized enterprises (MSME) in India by giving them a smoother capital cycle and more robust cash flow, Union Finance Minister Nirmala Sitharaman told the Tribune.
“It is a very important Bill which will benefit the MSMEs of this country because a difficulty is constantly expressed by the MSMEs that their receivables are getting delayed,” she said.
“As a result, there is a provision of selling their receivables to a third party. If the third party is going to make an immediate availability of funds, they shall be able to move their business smoothly. There are several such advantages in factoring from payment of the seller.”
The minister said MSMEs play a prominent role in contributing to India’s gross domestic product (GDP), while also adding 40 percent of all manufacturing sector exports.
If these businesses are able to access non-banking financial companies (NBFCs), “who can perform as a factoring third party as well, you can imagine the number of MSMEs getting direct benefits because of this,” Sitharaman said.
As PYMNTS noted earlier this month, India’s factoring market makes up just 0.2 percent of the country’s GDP, even after some expansion in recent years.
Trade finance has developed a complex reputation as financial technology and alternative lending advances have given companies more access to different forms of B2B financing.
Some methods, like factoring, involve a vendor — while waiting on payments — selling an invoice to a financier at less than its full value. The goal is to provide a win-win situation for B2B purchases and vendors, letting suppliers get funds faster and giving buyers more time to settle the bill. Critics say these methods further the practice of deliberately withholding payment from small vendors, forcing them to accept less than what they’re owed.