The International Financial Services Centres Authority (IFSCA), the sole regulator of the Gift City-based International Financial Service Centre, has issued licences to four trade-financing platforms to tap the €2,724-billion international factoring business.
The supply chain finance potential in global trade is $17 trillion.
Indian-licensed trade-financing platforms, or TReDS (trade and receivables discounting system) platforms, use blockchain for checking bills submitted for discounting and they may be tested and used for Gift city ventures as well. However, this is not mandatory from the IFSCA point of view but entities coming up at the IFSC are contemplating the use of blockchain.
These in-principle licences were issued by the IFSCA last Friday to start working through sandbox facilities before formal business.
India’s two RBI-licensed TReDS platforms —M1xchange and RXIL —have got the licence. Two others are KredX and Vayana, which are service providers for bill discounting and related facilities offered by banks. These platforms will enable exporters and importers to avail themselves of trade-finance facilities such as export and import factoring, reverse factoring, supply chain financing, and forfaiting transactions at competitive terms.
According to the McKinsey Global Payments Report 2020, the supply chain finance potential in global trade is $17 trillion. The IFSCA had released a framework for setting up and operating an international trade finance services platform (ITFS) in July. The licensee will have to use the sandbox facility proposed by the regulator, which will help them test programmes before the formal launch. These entities are expected to go live in the first or second quarter of next financial year.
M1xchange is planning a 100 per cent subsidiary for the IFSC business.
Sundeep Mohindru, chief executive, said: “The initial confidence of banks and buyers/sellers will have to be won to solve their financing needs. Global banks outside India and banks based out of GIFT City will be able to undertake financing on the ITFS.” “M1xchange TReDS currently uses blockchain for de-dupe checks on financing invoices for domestic transactions. The discussions will be undertaken with partner to replicate this for the ITFS.”
India has huge potential to increase domestic as well as export financing facilities like factoring and so on. According to a parliamentary report, France’s factoring business share is 18.3 of GDP, the UK ’s 17.3 per cent, China’s 3.2 per cent, Brazil’s 4.1 per cent, and India’s 0.2 per cent.
Even online platforms such as TReDS have huge potential to provide financing at competitive rates. As of now, exporters discount their receivables with banks they deal with but if organised platforms can provide these facilities, the cost of discounting will be lower due to competition.
Ketan Gaikwad, managing director and CEO, RXIL, said: “The ITFS has the capability to open the door for international trade financing through price discovery mechanisms on the platform at internationally competitive rates. This will be of benefit to exporters and importers of India as well as other international jurisdictions.”
“The ITFS framework would facilitate exporters and importers to avail themselves of various types of trade finance at competitive terms,” said Dipesh Shah, head of development, International Financial Services Centres Authority.