Four platforms obtain IFSCA license for factoring activities in Gift City
The International Financial Services Centers Authority (IFSCA), the sole regulator of the Gift City-based international financial services center, has licensed four trade finance platforms to operate the € 2.724 billion in business international factoring.
The potential for supply chain finance in global trade is $ 17 trillion.
Indian licensed trade finance platforms, or TReDS (Trade and Receivables Discount System) platforms, use the blockchain to verify invoices submitted for discount and they can also be tested and used for Gift City businesses. However, this is not mandatory from an IFSCA perspective, but upcoming IFSC entities are considering the use of blockchain.
These in-principle licenses were issued by the IFSCA last Friday to start working via sandbox facilities before formal activities.
India’s two RBI licensed TReDS platforms – M1xchange and RXIL – have been licensed. Two others are Kredex and Vayana, which are providers of bill discounting and related facilities offered by banks. These platforms will enable exporters and importers to benefit from trade finance facilities such as export and import factoring, reverse factoring, supply chain finance and trade finance. forfeiting at competitive conditions.
According to the McKinsey Global Payments Report 2020, the potential for supply chain finance in global trade is $ 17 trillion. The IFSCA had published a framework for the establishment and operation of an international trade finance services (ITFS) platform in July. The licensee will have to use the sandbox installation offered by the regulator, which will help him to test the programs before the formal launch. These entities should be operational in the first or second quarter of the next fiscal year.
M1xchange foresees a 100% subsidiary for the IFSC activity.
Sundeep Mohindru, Managing Director, said: “The initial confidence of banks and buyers / sellers will have to be earned to resolve their financing needs. Global banks outside India and GIFT City-based banks will be able to undertake financing on the ITFS. “” M1xchange TReDS is currently using blockchain for deduplication checks on domestic transaction finance invoices. Discussions will be undertaken with the partner to replicate this for the ITFS.
India has enormous potential to increase domestic and export financing facilities like factoring and so on. According to a parliamentary report, the share of factoring in France is 18.3% of GDP, 17.3% in the United Kingdom, 3.2% in China, 4.1% in Brazil and 0 , 2% in India.
Even online platforms such as TReDS have enormous potential to provide finance at competitive rates. Now, exporters discount their receivables from the banks they deal with, but if organized platforms can provide these facilities, the cost of the discount will be lower due to competition.
Ketan Gaikwad, Managing Director and CEO of RXIL, said, “ITFS has the ability to open the door to international trade finance through price discovery mechanisms on the platform at internationally competitive rates. . This will benefit India’s exporters and importers as well as other international jurisdictions. “
“The ITFS framework would allow exporters and importers to avail themselves of various types of trade finance on competitive terms,” said Dipesh Shah, development manager, International Financial Services Centers Authority.