There are remarkable transformations occurring within the financial environment of the International Financial Services Centre (IFSC) after the inception of the International Financial Services Centres Authority (IFSCA). The new regulations are aimed at creating greater efficiency and simplifying the trade finance factoring business-a key tool to stimulate liquidity for businesses or industries. Banking trade finance is diversifying with various options such as factoring that allow businesses to convert receivables into immediate cash to bring liquidity to meet operational or working capital gap continuity. The different trade finance products, especially the factoring mechanism, have played a vital role in the trade finance ecosystem of India, particularly given the framework provided by IFSCA. Understanding its paramount significance, the IFSCA has framed a complete regime that provides a transparent registration process and adheres to sound operational standards to promote factoring opportunities for registered finance Companies. By means of clear guidelines, IFSCA aims to galvanize the global player and foster innovation in a well-regulated environment concerning trade finance involved in factoring activities, particularly in the GIFT IFSC zone.

Registration of Factors:

  1. Every factor intending to commence factoring business in an IFSC must obtain registration from the IFSCA under IFSCA (Finance company) regulations.
  2. Registration requirement does not apply to bank or statutory corporation or government company.

Eligibility Criteria:

After reviewing the application, the Authority may grant the registration certificate if the factor meets all the prescribed conditions, including:

  • Obtaining a Certificate of Registration under the IFSCA (Finance Company) Regulations, 2021.
  • Ensuring the Relevant Persons (Key Managerial Personnel) having adequate experience in factoring.
  • Possessing or being willing to invest in the necessary infrastructure (office space, equipment, etc.) to operate in GIFT IFSC.
  • Meeting the ‘fit and proper’ criteria and maintaining financial soundness at all times.
  • No pre-involvement in any judicial proceedings related to legal breaches.

Net worth requirement:

As factoring is one of the core activities in the regulation of finance Companies issued by IFSCA. It would be required to maintain minimum owned funds of USD 3 million.

Pre-requisite to Conduct of Business:

  • Factors must commence their factoring business within six months of receiving the registration under the said regulations.
  • Existing finance companies already holding a certificate of registration for undertaking factoring business shall be deemed to be granted registered under these regulations.
  • A factor can undertake factoring directly with the assignor or through an ITFS (International Trade Finance System), subject to the applicable laws and regulations.
  • Entities other than factors, meeting such eligibility criteria as may be specified by the Authority, may undertake factoring business through an ITFS.

Registration of Assignments of Receivables

  • The receivables financed through a Trade Receivables Discounting System (TReDS) must be registered with the Central Registry within ten days of assignment of receivables in favour of Factor or satisfaction of any assignment of receivables (full realisation).
  • Every form for registration of any transaction of assignment or satisfaction must be submitted along-with the prescribed fee.

Process flow for setting up in GIFT IFSC

Companies wishing to establish factoring businesses in GIFT City need to follow a predefined procedure set by IFSCA, ensuring compliance with local and international trade finance standards.

Regulatory Fees

1. IFSCA Fees for Finance Company / Unit:

Particulars Amount (In USD)
Application Fees (One-time)  1,000
Registration fees (One-time) 12,500
Recurring Fees (Annual)  12,500

 

2. SEZ Authorities Fees (Now IFSCA Admin)

Particulars INR (₹)
 Application fees (one-time) 5,000
 Registration fees (one-time) 25,000
 Recurring fees (annual) 5,000

 

Conclusion

The establishment of a strong regulatory framework for factoring activities within the IFSC by IFSCA ensures commitment by the Authority toward development of a financial ecosystem that is transparent, efficient, and globally competitive. This effort is envisaged for the great benefit of finance companies engaged in such trade finance services under IFSCA. Currently, about 10 finance companies are registered with the IFSCA within core and non-core finance activities, out of which 3 are currently providing services through the International Trade Financing Services Platform or ITFS. As GIFT City Gujarat grows, it will promise even further opportunities to global trade finance houses, investors, and businesses establishing their footprint in India’s premier financial services ecosystem.

Innovatively strong and sustainable groundwork has, as well laid by IFSCA, set really well on going on innovations in receivables management by streamlining registration requirements, benchmarking eligibility criteria, and adherence to stringent operational parameters. As GIFT City, Gujarat grows, it presents one more dimension to the promises of global trade finance houses, investors, and businesses looking to set foot in India’s best financial service ecosystem

Why InCorp?

At InCorp, our team has extensive expertise in providing end-to-end support in the entire process of incorporating a Finance Company in GIFT City IFSC. The key service offerings are indicated below:
·Assistance with structuring the entity as per the regulatory requirement
·Advisory on regulations and tax implications for compliance and optimal structuring
·Assisting in preparing the requisite documentation and representation before the regulatory authorities for incorporation and licensing of finance entities in GIFT IFSC
·Assisting with the establishment of Finance Co. entities and support in post-incorporation compliance, if any
For further inquiries on our services in GIFT City, please drop us a line at info@incorpadvisory.in or contact us at (+91) 77380 66622.

Authored by:
Kritika Raj Singh | GIFT City

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