New Delhi: The Credit Guarantee Fund for Factoring (CGFF), with the initial corpus of Rs 500 crore, is likely to be operational in the next 3-4 months.
CGFF, under the aegis of Small Industries Development Bank of India (SIDBI), will be set up as a trust.
It will provide credit guarantee to banks, financial institutions and similar companies against factoring to the MSME sector.
Factoring is the payment against receivables and bills for managing cash flows and deal with liquidity problems.
"Consultations in this regard will be complete in the next few days," SIDBI Chairman and Managing Director Sushil Muhnot said.
Finance Minister P Chidambaram had said in the Budget 2013-14: "The Factoring Act 2011 has been passed by Parliament ...It proposes to provide a corpus of Rs 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring."
Soon after the announcement, the Department of Financial Services had requested SIDBI for a formal proposal for the setting up of the CGFF covering its structure, functioning and management.
This is expected to give a fillip to factoring or receivables financing, which has failed to pick up substantially after the Factoring Act was passed in 2011, Muhnot said.
"Elsewhere in the world, most of the working capital financing to MSMEs happens through factoring," he said.
Muhnot added that SIDBI has enough experience to run the CGFF as it has been running the Credit Guarantee Trust for Micro and Small Enterprises, along with commercial banks as member lending institutions, to provide collateral-free loans of up to Rs 1 crore.
First Published: Sunday, March 24, 2013, 13:05