Factoring Regulation Amendment Act, 2021

On the 7th of August 2021, Rajya Sabha passed the Factoring Regulation Amendment Bill intending to bring various changes to the legislative system to help the Micro, Small, and Medium Enterprises (MSME) sector. The Factoring Regulation act of 2021 is aimed towards the expansion of credit facilities available to small businesses.

It looks forward to helping them by allowing them access to funds from 9500 non-banking financial companies (NBFC). The bill has taken several suggestions from the U.K. Sinha committee.

Here are the key points of the Amendment Act that you must include in your UPSC notes for your upcoming exam preparation.

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Major Provisions of the Factoring Regulation Amendment Bill

  • The first provision of the bill is bringing change in various definitions of terms like “receivable”, “assignment”, and “factoring business”. The aim is to bring these terms up at par with global standards.
  • The Factoring Regulation Act of 2021 aims to amend certain areas of the same act of 2011 to increase the scope of the parties engaging in the factoring business. The old law allowed the RBI to exercise authority to decide who remains in factoring business based on whether these non-bank finance companies made this their principal business. The new act removes this threshold and opens a stream of new opportunities for these businesses.
  • Further, the bill also mentions that trade receivables that are financed through TreDS or Trade Receivables Discounting System should be filed with the Central Registry by the responsible TReDS.
  • Furthermore, the bill also lands power in the hands of RBI to regulate the grant for registration certificates to a factor.
  • Finally, the bill overrules the 30 days rule of registering every transaction made by the factors.

The above provisions are crucial for answering questions from Factoring Regulation Amendment Act 2021 UPSC.

Significance of the Factoring Regulation Amendment Act 2021

The bill allows non-NBFC factors along with some others to partake in the factoring business. This is significant because it is expected to majorly increase the availability of funds for smaller businesses. This, in retrospect, might bring down the cost of funds and allow various small businesses that are credit-hungry. This will ensure and increase the regularity of timely payments.

Further, the bill also signifies the introduction of easier liquidity, which will accelerate the operations in the MSME sector. The MSME sector was always the victim of delayed receivables due to a huge tension in the liquidating process. The bill seeks to resolve that tension and is estimated to bring in smoother working capital and a healthier flow of cash.

Finally, Factoring Regulation Amendment Act 2021 looks forward to liberating the restrictive provisions of the 2011 act as well as ensuring that a strong regulatory provision is administered with the help of the Reserve Bank of India.

Other Related Links

What is the Foreign Contribution Regulation Amendment Act 2020?

List of Important Acts that Transformed India

Foreign Exchange Management Act (FEMA)

Taxation Laws (Amendment) Act, 2021

Indian Polity Notes For UPSC

List of Important Banking Sector Reforms & Acts

Frequently Asked Questions on the Factoring Regulation Amendment Act 2021

What is the U.K. Sinha committee?

In January 2019, the Reserve Bank of India or RBI decided to form an expert committee of a total of eight members in order to look at and come up with suggestions for various long term solutions for the economic and financial stability of the Micro, Small, and Medium Enterprises (MSME) sector under the former chairman of Securities and Exchange Board of India, U.K. Sinha. The committee has provided the government with certain recommendations, including strengthening the financial mechanism and acknowledging to encourage the use of modern technology, keeping in mind the MSME Development Act to ensure the development of this sector.
Questions regarding the U.K. Sinha committee are very common in current affair quizzes and must be studied well.

How is a bill passed in India?

A bill is a draft of a legislative proposal that turns into law when passed by the Parliament. These legislative proposals can be presented before either of the two houses of Parliament – the Lok Sabha or the Rajya Sabha. The bill is then argued upon in the house it was introduced to and sent to the other house upon reaching consensus. The bill has to be passed by both the Lok Sabha and the Rajya Sabha, and finally, when assented by the President of the country, it becomes an act of the Parliament.

Define the MSME sector.

The MSME or the Micro, Small, and Medium Enterprises sector is a major contributor to the GDP (Gross Domestic Product) of the country (30%). As the name suggests, the MSME sector comprises enterprises that are deemed to be very small in terms of their operation and revenue. However, this sector plays a crucial role in our economy by creating many employment opportunities.

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