A study of factoring as an alternative to raising working capital finance
Student name: Ms Sonakshi Khanna
Guide: Dr Rajiv Seth
Year of completion: 2012
Host Organisation: IFCI Factors Limited
Supervisor (Host Organisation): Mr Soumendra Ghosh
Abstract: SME’s in India are the fountain head of innovation and play a very significant role in the economy in
terms of balanced and sustainable growth, employment generation, development of entrepreneurial skills
and contribution to export earnings. However, despite their importance to the economy, most SMEs are
not able to stand up to the challenges of globalization, mainly because of difficulties in the area of
financing, particularly working capital finance . With the opening up of the Indian economy, it has become
necessary to consider measures for smoothening the flow of credit to this sector.
In spite of numerous initiatives by the government towards making credit available to SMEs and subsidies
granted to banks for lending to this sector, banks hesitate in lending to SMEs because of non availability
of collateral and lack of successful track record of business. The risk on such capital is perceived to be
high by lenders partly due to lack of norms of corporate governance in these firms and partly due to
inadequate market information.
In wake of working capital financing issues faced by SMEs, factoring has the potential to emerge as a
valuable alternative means of finance. This study is being undertaken to highlight factoring as a potential
mode of working capital finance for SMEs vis a vis traditional working capital products.
