India Exim Bank launches subsidiary for trade financing in GIFT City

The new entity will initially begin providing factoring services to Indian exporters. Factoring service involves a business selling its accounts receivable (invoices) to a third party to meet its short-term liquidity needs.

“The objective of setting up the subsidiary at GIFT City is to provide factoring services. If an Indian company wants to export, the bills can be factored with us and so the company will not have to worry about receivables from that particular transaction or arranging working to hold the receivable period. We are looking to stabilise the operations within a year. We are hopeful that by the end of September we will start doing business,” said Harsha Bangari, India EXIM Bank Managing Director, during an interaction with mediapersons at GIFT City.

The subsidiary in GIFT House will initially employ 10-12 persons. Though the firm will start with factoring business, it is also expected to provide a larger gamut of other trade finance solution products. “Factoring business is a little new to India. Globally, it is one of the primary instruments of trade finance,” she added. The first announcement to establish a subsidiary of EXIM Bank for trade refinancing in GIFT City was made by Union Finance Minister Nirmala Sitharaman in her budget speech in February this year.

Earlier, while formally launching the website and logo of the new India Exim Bank subsidiary, Bangari said, “Access to finance has been a critical enabler of international trade. However, there is a large ambient demand for trade finance, especially in the MSMEs. Globally, the trade finance gap is expected to be USD 2 trillion, as estimated by Asian Development Bank. Factoring presents a mechanism suited to the needs of MSMEs. It provides a combination of three essential services to exporters: receivable financing, coverage of risks for non-payment and management of account receivables. It leads to improved cash flows and reduced risks for exporters.”

“Typically when we lend money, we look at the security of the lending operation. This endeavour of ours through our subsidiary basically takes care of those constraints. Here, what is important is that the company should be having good products to export and they should get a good buyer who is buying their products. Once that is established, financing automatically gets taken care of by the factoring services and there is no need for the Indian companies to take loan on their books,” she added.

K Rajaraman, the newly appointed chairman of International Financial Services Centres Authority (IFSCA) at GIFT City, said, “The requirement of trade finance is going to multiply. We have set ourselves a target of nearly USD 2 trillion in exports by 2030 and so the requirement for finance will be multifold, especially for those at the bottom of the pyramid, like the MSMEs and start-ups. So the subsidiary of the Exim Bank is the first company in the GIFT ecosystem that is going to work in the area of trade financing.”