Mas Financial: nod from RBI to undertake factoring business

Mas Financial: nod from RBI to undertake factoring business

Mas Financial: RBI Approval to Undertake Factoring Business

The Reserve Bank of India (RBI) has granted recognition to Mas Financial to operate as a non-banking financial company (NBFC) engaged in factoring, aligning with India's evolving regulatory framework for trade receivables financing. This development underscores the RBI's ongoing efforts to expand access to working capital for micro, small, and medium enterprises (MSMEs), a critical segment of India's economy.

Factoring, the practice of selling trade receivables to a third party (the factor) for immediate liquidity, has gained prominence as a tool to address cash flow gaps among MSMEs. The RBI's 2022 regulations, including the Registration of Factors Regulations and Registration of Assignment of Receivables Regulations, have streamlined entry for NBFCs into the factoring sector. To qualify, entities like Mas Financial must maintain a minimum Net Owned Fund (NOF) of ₹5 crore and ensure at least 50% of their assets and income derive from factoring activities. These requirements aim to ensure financial stability and operational focus within the sector.

The regulatory environment has further been strengthened by the inclusion of factoring in the RBI's Priority Sector Lending (PSL) Master Directions, 2025. Under these guidelines, factoring transactions involving MSMEs are now classified as eligible priority sector credit, incentivizing banks and NBFCs to channel resources toward this segment. This alignment supports the government's broader objective of formalizing MSME trade credit and enhancing liquidity.

Key legislative pillars, such as the Factoring Regulation Act, 2011 (FRA 2011), provide the legal foundation for factoring in India. The act mandates registration with the RBI for entities conducting factoring business and introduces measures like stamp duty exemptions for receivables assignments, reducing transaction costs. Additionally, the Central Registry of Securitisation, Asset Reconstruction, and Security Interest (CERSAI) ensures transparency by requiring registration of all receivables assignments.

Mas Financial's approval reflects the RBI's commitment to fostering a robust factoring ecosystem. By enabling NBFCs to participate actively, the regulator aims to diversify credit channels for MSMEs, reduce reliance on traditional lending, and promote financial inclusion. As the sector matures, adherence to regulatory compliance—particularly in documentation, risk allocation, and CERSAI/TReDS filings—will remain critical to sustaining growth and systemic stability.

This development positions factoring as a scalable solution for MSME liquidity challenges, reinforcing its role in India's financial infrastructure.

Factoring Regulations In India: A Comprehensive Regulatory Overview: Factoring Regulations In India: A Comprehensive Regulatory Overview, Luthra and Luthra Law Offices India (Mondaq).