Context: The Rajya Sabha recently passed the Factoring Regulation (Amendment) Bill, 2021, while the Opposition continued its protest.

More in the news:

  • According to the Finance Ministry, the Bill will benefit micro, small and medium enterprises (MSME).
    • It would enable MSMEs to access about 9,000 NBFCs (non-banking financial companies), an increase from the current seven available to them.
  • The Bill was already passed by the Lok Sabha recently.
  • Under the Factoring Regulation Act, 2011 factoring business is a business where an entity (referred as factor) acquires the receivables of another entity (referred as assignor) for an amount.
  • Receivables is the total amount that is owed or yet to be paid by the customers (referred as the debtors) to the assignor for the use of any goods, services or facility. 
  • Factor can be a bank, a registered non-banking financial company or any company registered under the Companies Act. 
  • The credit facilities provided by a bank against the security of receivables are not considered as factoring business.

Changes brought under the Factoring Regulation (Amendment) Bill of 2021:

  • Amend the definitions of "assignment", "factoring business" and "receivables", so as to bring them in consonance with international definitions and also to insert a new definition of "Trade Receivables Discounting System".
  • Amend section 3: 
    • To widen the scope of financiers, 
    • To permit other non banking finance companies also to undertake factoring business and participate on the Trade Receivables Discounting System platform for discounting the invoices of micro, small and medium enterprises.
  • Amends sub-section (1) of section 19: 
    • To reduce the time period for registration of invoice and satisfaction of charge upon it, in order to avoid possibility of dual financing.
  • It also to insert a new sub-section (1A.) in that section to allow the concerned Trade Receivables Discounting System to register charge with the Central Registry on behalf of the factors using the platform.
  • Insert a new section 31A to empower the Reserve Bank of India to make regulations with respect to factoring business.