Jaipur (Rajasthan)-based 121 Finance becomes India’s first fintech led NBFC (non-banking financial company)-Factor to receive the Certificate of Registration (CoR) under Registration of Factors (Reserve Bank) Regulations 2022. That means, it is the first NBFC to convert from an Investment and Credit Company (ICC) to an NBFC-Factor.
- Until now, Factoring was offered only to the large corporates.
What is a NBFC-Factor?
It is a NBFC fulfilling the Principal Business Criteria (PBC) i.e. whose financial assets in the factoring business constitute at least 50% of its total assets and its income derived from factoring business is not less than 50% of its gross income. Also, it should have a minimum Net Owned Funds (NOF) of Rs 5 crore.
- The Factoring Regulation Act, 2011, was enacted by the parliament in January 2012. Then in 2021, RBI’s Factoring Regulation Amendment Bill, 2021 passed to broaden the participation by allowing classified NBFCs specializing in Factoring to participate in the process. Then in January 2022, the 2011 Act was amended with Registration of Factors (Reserve Bank) Regulations 2022.
- It addresses the most significant challenge of businesses i.e. arranging short-term funds for MSMEs (Micro, Small & Medium Enterprises), without any collateral.
Key Points:
i.Under this registration, MSME can sell a receivable invoice to 121 Finance, without any collateral. With this the business can convert these invoices into cash instantly and be free from the management of the receivables.Â
ii.Factoring aka Invoice Discounting is not shown as a loan in the Balance Sheet.Â
iii.This is faster than traditional sources of Working Capital available in the market .
iv.121 Finance will reach annual disbursements of over Rs 500 crores by 2023.
v.It is also planning to go live on the three Trade Receivables Discounting System (TReDS) as a lender viz.Â
- Receivables Exchange of India Ltd [formed by NSE (National Stock Exchange) Investment Ltd and Small Industries Development Bank of India (SIDBI)],Â
- Mynd Solutions Pvt Ltd
- A. TREDS Ltd (joint venture of Axis Bank and Mjunction Services Ltd)
Recent Related News:
In exercise of the powers conferred by sub-section (1) read with clauses (b) to (f) of subsection (2) of Section 38 of the Payment and Settlement Systems Act, 2007 (51 of 2007), the RBI updated the Payment and Settlement Systems Regulations, 2008.These allow companies to run payment businesses to seek licenses from the regulator.
About 121 Finance:
Establishment– 1984
Headquarters- Jaipur, Rajasthan
Founder & CEO– Dr Ravi Modani
