India Factoring Services Market Research, 2032
The India factoring services market size was valued at $5.72 billion in 2019 and is projected to reach $48.97 billion by 2032, growing at a CAGR of 11.6% from 2024 to 2032.
Factoring services is a financial arrangement between the factor and the client, in which the firm (client) gets advances in return for receivables from a financial institution (factor). It is a financing technique, in which there is an outright selling of trade debts by a firm to a third party, that is factor, at discounted prices. Moreover, it is a financial alternative, in financing and management of accounts receivable. It states the terms and conditions of the sale in the factoring agreement.Increasing implementation of open accounts in small and medium enterprises (SMEs) in India propels the growth of the market.
Furthermore, the expansion of the manufacturing industry in India and the growing need among startups and SMEs for an alternate source of finance is further driving the growth of India factoring services industry. In addition, the increasing need for alternative sources of finance for SMEs is a major factor driving the factoring services industry in India. However, the lack of a stringent regulatory framework for debt recovery mechanisms in India, and higher finance charges are major challenges to the expansion of the India factoring services market. Moreover, another major restraint faced by the factoring services market in India is the lack of awareness regarding factoring services. On the contrary, the adoption and rapid development of blockchain technology is expected to provide lucrative opportunities for the market to grow in the upcoming years. Blockchain, the core technology of Bitcoin and other cryptocurrencies, is gaining widespread acceptance as a mainstream payment mode and is driving value growth.
The report focuses on growth prospects, restraints, and trends of the India factoring services market outlook. The study provides Porter’s five forces analysis to understand the impact of various factors, such as bargaining power of suppliers, competitive intensity of competitors, threat of new entrants, threat of substitutes, and bargaining power of buyers, on the India factoring services market forecast.
By Provider
Banks segment accounted for the highest market share in 2019.
Segment Review
The India factoring services market is segmented based on provider, enterprise size, application, product type, and industry vertical. By provider, it is categorized into banks and NBFCs. By enterprise size, it is bifurcated into large enterprises and small and medium-sized enterprises (SMEs). Depending on application, it is fragmented into domestic, and international. By international, the market is further categorized into export factoring and import factoring. By product type, the market is differentiated into recourse factoring and non-recourse factoring. By industry vertical, it is divided into construction, manufacturing, healthcare, transportation and logistics, energy and utilities, IT and telecom, staffing, and others.
By provider, the banks segment attained the highest India factoring services market share in 2019. This is attributed to the fact that it provides secure factoring services with minimum chances of fraud. Bank factoring firms use the same steps as traditional factoring firms. However, they are regulated by banks, which means no intermediary is involved, leading to lower factoring costs which is one of the key factors for the development of this segment. However, the NBFCs segment is expected to grow at the highest rate during the forecast period, owing to the increasing government regulations enabling them to provide factoring services to SMEs.
By Industry Vertical
Manufacturing segment accounted for the highest market share in 2019.
The report analyzes the profiles of key players operating in the India factoring services market such as Barclays Bank PLC, BNP Paribas, SBI Global Factors Limited, TreasuryXL, FIM Bank, Tata Capital Financial Services Limited, IDBI Bank, Aditya Birla Capital Ltd., Yes Bank, and Bank of Baroda. These players have adopted various business strategies such as product launch, partnerships, and business development to increase their market penetration and strengthen their position in the India factoring services market.
Market Landscape and Trends
Various initiatives have recently been implemented to reduce the issues faced by the factoring sector and expand the scope of factoring across India. The Factoring Regulation (Amendment) Act 2021, which has widened the scope of the entities that can engage in the factoring business, significantly boosts the funding availability to cash-starved SMEs in India. The act’s main provisions include the assignment of debts under factoring being exempted from stamp duty; assignment of debts being provided with legal recognition; and mandatory notice of assignment.
In addition to the launch of TReDS, the RBI has introduced factors as a new category of non-banking financial company (NBFC). It has also simplified the eligibility criteria for principal business, requiring the NBFC Factor to ensure that financial assets in the factoring business constitute at least 50% of total assets and that income derived from the factoring business is not less than 50% of gross income, as opposed to 75% previously. According to RBI regulations, factors can now get credit information from credit bureaus. Therefore, these are the major market trends for the India factoring services market.
During the COVID-19 epidemic, the India factoring services market was negatively impacted due to the sudden lockdown in 2020. Furthermore, the sudden emergence of the COVID-19 pandemic has impacted the Indian economy by causing supply chain and market disruptions and has had a severe financial impact on businesses and financial markets in India. In addition, as the pandemic situation improved and economic activities gradually resumed, the India factoring services market size also started to recover. The market saw renewed interest as businesses sought to stabilize their operations and manage their working capital needs, which, in turn, contributed toward the India factoring services market growth.
Top Impacting Factors
Rise in Open Account Trading Opportunities in India
Increasing implementation of open accounts in small and medium enterprises (SMEs) in India propels the growth of the market. Furthermore, the expansion of the manufacturing industry in India and the growing need among startups and SMEs for an alternate source of finance is further driving the market growth. In addition, BFSI companies are adopting and developing machine learning techniques to analyze large volumes of data and deliver valuable insights to customers.
Moreover, an increase in investments in AI and advanced machine learning by fintech & banks to enhance the automation process and offer a more streamlined and personalized customer experience propels the growth of the market. For instance, in May 2020, blockchain firm MonetaGo announced that Indian fintech Finovate Capital adopted its trade finance anti-fraud solution for its 15+ lenders. Finovate provides invoice discounting and supply chain financing to SMEs and corporates in India. The blockchain solution authenticates invoices with India’s Goods and Services Tax Network (GSTN) database and verifies the eWay Bill submitted to National Informatics Centre (NIC). This enables Finovate and its lenders to map the risk profile of an applicant and speed up the process of trade financing. Thus, this propels the growth of the India factoring services market.
The Necessity for Cash Flow Management
The need for factoring services is being driven by the requirement for cash flow management. Businesses must manage their cash flow properly to maintain efficient operations. Businesses can successfully manage their cash flow by utilizing factoring services, which convert accounts receivable into cash. Furthermore, the market for factoring services is developing as a result of the growing trend of digitalization. Many factoring companies are introducing digital platforms to streamline their operations and make it easier for businesses to use their services. By utilizing digital platforms, factoring companies can reduce their operating costs and provide their clients with faster, and more effective services.
Need for Alternate Sources of Financing for SMEs in India
The increasing need for alternative sources of finance for SMEs is a major factor driving the factoring services industry in India. Financing is essential for SMEs to expand their business operations, create new products, and invest in better inventory management systems and manufacturing facilities. Internal or external sources are used for financing. Due to the limited availability of and lack of access to funds among these firms, they must rely on external sources of financing, which include loans from banks, investments by venture capitalists in their business, factoring, and others.
In addition, factoring businesses provide working capital loans to help improve credit risks by offering dynamic incentives such as providing loans without start-up fees or termination fees. Receivables financing, bill discounting, and factoring can take the place of working capital financing requirements, catering to the special needs of SMEs.
Adoption and Advancement of Blockchain Technology
The adoption and rapid development of blockchain technology is propelling the growth of the India factoring services market. Blockchain, the core technology of Bitcoin and other cryptocurrencies, is gaining widespread acceptance as a mainstream payment mode and is driving value growth. The adoption of blockchain by the National Association of Securities Dealers Automated Quotations (NASDAQ) in its private share-trading market demonstrates its potential for reshaping several industries, including factoring and stock markets.
In addition, blockchain innovations are expected to reduce the vendor's startup costs and digitize the factoring process, resulting in better technology to record trade transactions and easy access to information for all stakeholders, including factors, buyers, and sellers, on a single platform. Therefore, these factors are expected to provide lucrative growth opportunities for India factoring services market.
Key Benefits for Stakeholders
- This report provides a quantitative analysis of the market segments, current trends, estimations, and dynamics of the India factoring services market analysis from 2024 to 2032 to identify the prevailing India factoring services market opportunity.
- Market research is offered along with information related to key drivers, restraints, and opportunities.
- Porter's five forces analysis highlights the potency of buyers and suppliers to enable stakeholders to make profit-oriented business decisions and strengthen their supplier-buyer network.
- In-depth analysis of the India factoring services market segmentation assists to determine the prevailing market opportunities.
- Major countries in each region are mapped according to their revenue contribution to the market.
- Market player positioning facilitates benchmarking and provides a clear understanding of the present position of the market players.
- The report includes the analysis of the regional as well as India factoring services market trends, key players, market segments, application areas, and market growth strategies.
India Factoring Services Market Report Highlights
| Aspects | Details |
 By Industry Vertical |
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 By Product Type |
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 By Provider |
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 By Enterprise Size |
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 By Application |
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 Key Market Players | Tata Capital Financial Services Limited, Yes Bank, Bank of Baroda, TreasuryXL, BNP Paribas, Aditya Birla Capital Ltd., IDBI Bank, Barclays Bank PLC, SBI Global Factors Limited, FIM Bank |
Analyst Review
Factoring has an important role in working capital finance. It substitutes bank borrowings and supplements the market credit or suppliers’ credit. In addition, with factoring, the average receivables collection period is reduced substantially and therefore, the total operating cycle time of the client is reduced. This contributes to efficient working capital. Moreover, it offers a variety of advisory services to its clients including credit assessment for its overseas buyers.
Furthermore, the rise in Merger and Acquisition (M&A) activity is raising the demand for factoring services in India. Capital is frequently required for M&A transactions, and factoring services can assist businesses in rapidly and effectively obtaining the required funds. The healthcare and technology sectors, where M&A activity is common, are particularly notable for this trend. These factors are driving revenue growth of the market during the forecast period.
Factoring services providers in India offer various types of services depending on client needs, including recourse and non-recourse factoring, domestic and international factoring, and disclosed and undisclosed factoring. Most deals done in India are with recourse to the corporate since the factoring company and bank are not able to cover the credit risk on the buyer. This is mainly because credit insurance is not allowed, as per regulations in India, for the purpose of factoring. Therefore, it is necessary to create a suitable institutional infrastructure that will not only make it possible to implement an effective and economical factoring and reverse factoring process but also ensure that sufficient liquidity is created for all stakeholders through an active secondary market for the same.
The COVID-19 pandemic outbreak caused severe problems for the factoring industry in India and imposed unprecedented challenges. Therefore, due to the uncertainty caused by the COVID-19 pandemic, many financing organizations, such as banks and lenders, suspended their financing operations. The imposed lockdowns, travel restrictions, and halt in business activities disrupted the distribution networks of several sectors, thereby impacting the factoring services market adversely. Furthermore, the manufacturing industry was affected in several ways due to the pandemic leading to low-scale operations, and eventually, a negative impact on production volumes. As a result, it became critical for lenders and banking organizations to conduct thorough analyses of businesses before providing factoring services.
The India factoring services market is fragmented with the presence of key players such as Barclays Bank PLC, BNP Paribas, SBI Global Factors Limited, TreasuryXL, FIM Bank, Tata Capital Financial Services Limited, IDBI Bank, Aditya Birla Capital Ltd., Yes Bank, and Bank of Baroda. Major players operating in this market have witnessed significant adoption of strategies that include business expansion and partnerships to reduce the supply and demand gap. With an increase in awareness & demand for factoring services in India, major players have collaborated their product portfolio to provide differentiated and innovative products.
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