Financing options available to MSMEs (Export Lines of Credit )

MSME Sector in India

Part 20

Export Lines of Credit

This financing option supports export oriented segments such as leather, gems and jewelry, etc. EXIM Bank has launched several initiatives for the benefit of such exporters - Export lines of credit to overseas financial institutions, regional development banks and foreign governments and their agencies and buyers credits (BC) to foreign corporates.

4 Export Lines of Credit –

Export Lines of Credit

Line of credits serve as a market-entry mechanism to Indian exporters and provide a safe mode of non-recourse financing option to Indian exporters. LOCs and BCs are particularly relevant for Indian SME exporters as the payment risk is borne by Exim Bank without the need for insurance from Export Credit Guarantee Corporation.

Microfinance

5 Microfinance

Leading national financial institutions like the SIDBI and the Rashtriya Mahila Kosh (RMK) have played a significant role in making micro-credit an important movement. In India, the size and types of implementing organizations range from very small to moderately big, involved in savings and credit activities for individuals and groups. These groups also adopt a variety of approaches. However, most of these organizations tend to operate within a limited geographical range.

Electronic Bill Factoring Exchange

6 Electronic Bill Factoring Exchange In a recent move, RBI permitted the setting up of an exchange-based

trading platform (Trade Receivables Discounting System) to facilitate financing of bills /invoices raised by MSMEs to corporate buyers including government departments and PSUs. This initiative was taken to make the MSMEs capable of converting their trade receivables into liquid funds.

Electronic Bill Factoring Exchange

Despite the many policies and measures to provide financial assistance to the MSMEs, they continue to face difficulties in raising timely and adequate credit at reasonable cost. This has led to the emergence of alternative sources of financing, some of which have been detailed below.

Factoring

7 Factoring Under this mode of finance, the MSME sells or assigns its accounts

receivables to a finance company (a factor) at a discount to meet its immediate funding requirement. This method of financing evolved so as to minimize the adverse effect of delayed payments by large scale customers on the operations of MSMEs.

Factoring

Factors buy the right to collect on invoices raised against any sales by the SME and releases 80-90% of the invoice value to the firm. The Indian factoring market is still at a nascent stage. There are approximately 10 factoring companies in India, and the oldest among them are Canbank factors and SBI Global Factors.

Supply Chain Finance

8 Supply Chain Finance

Supply chain finance is fast emerging as another route to facilitate MSMEs access to enhanced working capital from bank and non-bank sources. This mode of financing enables SME suppliers to large OEMs to receive short-term credit against the volume supplied during the payment receivable period.

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