Company invests ₹60 cr; reduces pricing to make factoring more viable for exporters
In a bid to boost exports, India’s export credit guarantee agency ECGC has revived its export-factoring business. This move comes amidst a slump in the country’s export growth due to slowing trade across advanced and emerging economies.
Factoring is a financial transaction whereby a seller (for example, an exporter) gets his accounts receivable (invoice) discounted with a ‘factor’ (such as ECGC). The discounting leads to release of funds (almost 90 per cent of outstanding invoice value) for the seller. The factor, in turn, collects the payment on the invoice from the buyer (for example, an importer) on the due date.
Geetha Muralidhar, Chairperson and Managing Director, ECGC (formerly Export Credit Guarantee Corporation of India Ltd), said leading exporting countries would not have been able to make a mark in global trade without export factoring.
“We now want to consciously work on our factoring product for micro, small and medium enterprises.We had been doing full-fledged factoring for some time. It was going on very well until we got stuck with the gem and jewellery industry…We got hit (in the early part of this decade).
“So immediately there was a knee-jerk reaction. The whole establishment decided not to touch it as it was very risky and we pulled back. I would say that was not a right decision,” said Muralidhar.
The ECGC chief said a sum of ₹60 crore has been set aside for growing the factoring business, currently a departmental activity, and could be hived off as a subsidiary at a later stage when the business gains critical mass.
“We have everything in place: clearance from the insurance regulator as well as the banking regulator, wherewithal in terms of trained people, membership of Factors Chain International (the global body for the open account receivables finance industry) and Electronic Data Interchange (EDI) to conduct the business.”
Giving a boost
To make factoring attractive for exporters, ECGC, among others, has brought down its pricing, cut down on margins and bundled it with export insurance. At present, the corporation is working on approving about half-a-dozen export-factoring proposals.
“We are gung-ho about factoring. But since we got hit in the past, we want to tread cautiously,” said Muralidhar.