The International Financial Services Centres Authority (IFSCA), on July 21, 2026, issued a framework on capital relief and prudential requirements for factoring transactions applicable to Finance Companies and Finance Units registered under the IFSCA (Finance Company) Regulations, 2021 undertaking factoring business in the IFSC. The circular clarifies the treatment of credit risk mitigation, eligibility for capital relief, and prudential norms for factoring transactions.
The framework permits eligible Finance Companies to claim capital relief where credit protection is obtained through credit insurance or guarantees from specified eligible institutions, including sovereigns, export credit agencies, public sector enterprises, multilateral development banks, banks, securities firms, prudentially regulated financial institutions, insurance companies, and import factors. It also prescribes the risk-weight treatment for covered and uncovered portions of factoring exposures and specifies the qualifying conditions that credit protection contracts must satisfy to be eligible for capital relief.
Further, Finance Units may claim capital relief only where such relief is recognised by the home regulator of their parent entity, supported by an undertaking at the time of registration. The circular also clarifies that the capital relief framework applies to all IFSCA-registered factors, irrespective of whether the factoring transactions are undertaken through the International Trade Finance Services (ITFS) platform or independently.
[Circular No. e.F.No. IFSCA-FCR0ITFS/2/2024-Banking]
