Credit and finance for MSMEs: Non-banking financial company Profectus Capital on Wednesday announced that it has received the Certificate of Registration (CoR) under the Factoring Regulations Act, 2011 from the Reserve Bank of India to provide factoring services to MSMEs. The company said it plans to offer timely and efficient factoring services to improve their working capital management, boost their businesses, and receive short-term finance to fund operations. Profectus will continue to focus on select manufacturing and service sectors based on its cluster-based lending approach.

Moreover, it plans to focus on BBB- and above rated corporate buyers. “Pricing of financial assistance would vary with the risk profile of the assisted entities,” it added.

Also read: SBI sanctions Rs 20 crore term loan to MSME lending NBFC Red Fort Capital Finance

“We are excited about the quick approval of our application from the RBI. This approval will enable us to penetrate deeper into our existing markets and widen our customer base. We expect the factoring space to evolve significantly over the next two years, owing to the inclusion of NBFCs and expect MSMEs to benefit significantly from an immediate improvement in their cash flows at a very low cost, said KV Srinivasan, Executive Director, and CEO of Profectus Capital in a statement.

Founded in 2017, Profectus Capital, backed by global private firm Actis, provides financial equity solutions to MSMEs in select manufacturing and services sector and has catered to enterprises in education, pharmaceuticals, healthcare, food processing, engineering and machine tools, printing and packaging, textiles, chemicals, and plastics.

Also read: Godrej Group’s NBFC arm announces new platform Nirmaan to offer these services to MSMEs

Most of its customers are in the Rs 30-300 million turnover bracket. It offers cluster-specific term loans, equipment purchase loans, supply chain finance and funding to smaller NBFCs as well.

Importantly, the central bank in January 2022 had issued regulations for the amended Factoring Regulation Act, 2011 after the Parliament had passed the Factoring Regulation (amendment) Bill in July 2021. This made eligible “as many as 9,000 NBFCs to participate in the factoring market , instead of just seven now, boosting cash flow to small businesses,” Finance Minister Nirmala Sitharaman had said speaking on the bill in Rajya Sabha in July last year.

The amendment had removed earlier guidelines that allowed NBFCs to remain in the factoring business only if their financial assets in the factoring arm and income earned from it was over 50 per cent of the company’s gross assets and net income.

Every company seeking to register as an NBFC-Factor required a minimum net owned fund (NOF) of Rs 5 crore. Other than NBFC-Factors, banks have been allowed to do factoring business in India. Hence, any lending company, other than a bank, could not enter into factoring unless it was registered as NBFC-Factor.

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