IFSCA Issued License To Four Platforms for Factoring Business at Gift City

According to the latest reports on Oct. 4, 2021, four trade financing platforms have recently got the IFSCA license to operate the €2,724-billion global factoring business by the International Financial Services Centres Authority (IFSCA), the sole controller of the GIFT-City-based International Financial Service Center. 

When it comes to the significance of supply chain finance in global trade, it is estimated at $17 trillion but currently, global supply chains are being affected by Covid-19.

Indian authorized trade financing platforms, or TreDS (trade and receivables discounting systems) platforms leverage blockchain to verify bills submitted for discounting and they might be tried and utilized for GIFT city investments as well. However, this is not compulsory according to the IFSCA perspective but the enterprises emerging at the IFSC are inspecting the use of blockchain.

These in-principle licenses were given by the IFSCA last Friday to start operating through sandbox facilities before formal enterprise.

The four trade financing platforms that have got the license include M1xchange and RXIL - India’s two-RBI licensed TReDS platforms. While two others are Kredex and Vayana which provide services for bill discounting and related facilities presented by banks. These platforms will allow importers & exporters to avail various trade financing services such as export & import factoring, reverse factoring, supply chain financing, and forfaiting transactions at competitive terms.

The McKinsey Global Payments Report 2020 shows the potential of supply chain finance in global trade is $17 trillion. A framework has been delivered by the IFSCA for setting up and operating an International Trade Finance Services Platform (ITFS) in July. According to this, the licensee is required to leverage the sandbox facilities offered by the regulator, which will assist them with program testing before the formal dispatch. These enterprises are expected to go live in the first or second quarter of the next financial year.

M1xchange is arranging a 100 percent Subsidiary for the IFSC business.

As per the chief executive, Sundeep Mohindru, “The underlying certainty of banks and buyers/sellers will have to be won to address their financial requirements. International banks outside India and banks based out of GIFT City will be capable of undertaking to fund the ITFS. At present, the blockchain platform is being used by the M1xchange TReDS for deduplication verifications on financing invoices for domestic transactions. The conversations will be attempted with associates to imitate this for the ITFS. ”

India has enormous scope to accelerate domestic as well as export financing facilities such as factoring, and so on. The parliamentary report shows that France's factoring business share is 18.3 of GDP, the UK’s 17.3 percent, China’s 3.2 percent, Brazil’s 4.1 percent, and India’s 0.2 percent.

Even online platforms, such as TReDS have greater opportunities to offer financing at competitive rates. At the present, exporters discount their receivables with the banks they operate but if these facilities could be provided by coordinated platforms, the expenses of discounting will be lesser due to the competition.

As per Ketan Gaikwad, managing director and CEO, RXIL, “The ITFS can open the entryway for global trade financing through price discovery mechanisms on the platform at globally competitive rates. This will be advantageous for the exporters and importers of India as well as other global jurisdictions.”

According to Dipesh Shah, head of development, International Financial Services Centres Authority, “The ITFS framework would provide exporters and importers to avail several types of trade finance services at competitive terms.”

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