IRDAI vide Circular number bearing IRDAI/ NL/CIR/GDL/176/10/ 2023 dated October 9, 2023 has notified about the amendment/modification of para 5.3A of Trade Credit Insurance (TCI) Guidelines.
Guidelines on TCI were issued in September, 2021 to protect business against risk of non-payment for goods/services. The Guidelines set a framework that facilitate TCI covers to suppliers as well as to banks or other financial institutions. It also covers SMEs and MSMEs.
To ease the constraints faced by MSME, in converting their trade receivable to liquid funds, RBI had issued guidelines in July, 2018 for the trade receivable discounting system (TReDS). Based on the experience, RBI in June 2023 decided to permit insurance facility for TReDS transactions, which would aid financiers to mitigate default risk, thereby allowing insurance companies to participate as “fourth participant” in TReDS and undertake “reverse factoring”.
In the light of the above, IRDAI has examined the feasibility of the same. IRDAI (Trade Credit Insurance) Guidelines, 2021 allows single Invoice covers through bill discounting/factoring on Invoice discounting e-Platforms such as TReDS. However, it restricts cover against reverse factoring transactions to participate as “Fourth Participant” in TReDS.
Therefore, to facilitate “reverse factoring” transactions on TReDS platform, para 5.3A is modified as follows:
“5.3 A trade credit insurance policy shall not cover:
Old- a) Reverse Factoring
New- a) Reverse Factoring (except on TReDS platforms)”.
Source category: IRDAI
Attachments
- /2023/273_Circular_on_Amendment_to_TCI_guidelines-Reverse_factoring.pdf
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