The Export-Import Bank of India (India Exim) plans to launch an export factoring programme for micro and small to medium enterprises (MSMEs) later this year to improve liquidity and cushion non-payment risks.

After being given the go-ahead by its board, the bank plans to roll out pilot transactions by the end of September, India Exim deputy managing director N. Ramesh tells GTR.

Under the programme, the bank will buy invoices from overseas buyers of Indian exports, meaning the local companies will get paid earlier while the state lender takes on the risk of non-payment by the overseas suppliers, a risk the bank says is growing.

The factoring product will sit alongside the bank’s trade assistance programme, launched earlier this year, under which the bank will extend credit lines to commercial banks to stimulate Indian exports, and also cover payment risks for commercial banks in India doing the same.

The trade assistance programme focuses on developing markets in Asia, Africa and Latin America while the factoring programme will be available only for exports to developed economies.

Ramesh says the bank is likely to initially only extend factoring in situations where there is a long-standing relationship between the Indian exporter and overseas buyer, but that “as we gain confidence, we may take a call on, say, huge corporates and bigger companies”, although will likely have trade insurance in place.

“I think it would be quite meaningful if we do something [for MSMEs] because there are other support systems available for bigger-value Indian exports, but the smaller-value consignments generally have a problem,” Ramesh says.

He expects tens of thousands of Indian exporters could use the service once it is up and running.

In consultations with the bank while the policy was being developed, Indian exporters said they were most keen for factoring to be available for developed markets, for example the UK and some EU countries, where open account trade was typically used in place of trade finance, and where payment terms are longer.

Only after regulatory changes in the last few years has domestic factoring in India increased in popularity, Ramesh says, meaning there has been a shortfall in supply for export factoring products as well.

Earlier this year the Reserve Bank of India (RBI) issued regulations, following legislative amendments, designed to stimulate the supply of domestic factoring products. The reforms included easing eligibility requirements for non-bank financial institutions wishing to conduct factoring business in the country.

India Exim’s export factoring programme is designed to complement the Trade Receivables Discounting System, a platform established by the RBI to facilitate domestic factoring by banks and other financial institutions in India.