FINANCIAL SERVICE

APRIL - 2015

SECTION – A (10X2=20)

Answer all the questions

1. What is meant by financial services?

Ans: The term financial service means mobilizing and allocating savings and all activities in the
transformation of savings into investment. It is otherwise called as financial intermediation.
New financial services like insurance and insurance related services, banking and financial
services are most important besides to facilitate international trade and flow of financial
resources. Financial services enable the user to obtain any asset on credit, according to his
convenience and at a reasonable interest rate. Financial service is a service (financial in nature)
offered by a financial service supplier.

2. What is new issue capital market?

Ans.: A primary market is one in which new securities are offered tot eh investing public for the first
time. It is also called new issue market. New capital issues market deals with rising of fresh
capital either for cash or consideration other than cash by companies and encompasses all
institutions dealing in the issue of fresh claims. The forms in which these claims are incurred are
equity shares, preference shares, debentures, tight bonus, deposits and miscellaneous loans and
etc. all financial institutions in the capital market contribute underwrite, or directly subscribe to
the new issue market.

3. What is Asset Management Company?

Ans.: The investment manager of mutual fund is technically known as the Asset
Management Company and he is appointed by the “sponsor or the trusties”. AMC
manage the affairs of the mutual fund.
 It is responsible for operating all the schemes of the fund and can act as the AMCof
only one mutual fund. Only activities which are in the nature of management and
advisory service to off shore funds, pension funds, provident funds, venture capital
funds, management of insurance funds, financial consultancy and exchange of
results on commercial basis undertaken by the AMC. With the permission of CIBI,
it can also operate as an under writer.
4. Write any two features of mutual funds.

Ans.: There are two features of mutual funds:

 Mobilizing small savings: Mutual funds mobilize funds by selling their

own shares known as units. This gives the benefit of convenience and the
satisfaction of owning share of many industries. Thus mutual funds are
primarily intermediaries to acquire individual investments and pass on the
returns to small fund investors.
 Providing investment avenues: It provides an ideal avenue for persons of
small means and enables them to earn a reasonable return with the
advantages of relatively better liquidity.

5. What is known as “Net leasing”?

Ans.: A variant of operating lease is net lease. A type of lease where the lessor is not concerned with
the repairs and maintenance of the leased asset is known as “Net lease”. A financial lease
wherein, all costs in connection with the use of equipment are paid by the lessee and are not set
off against the rental.

6. State any two limitations of leasing.

Ans.: There are various limitations of lease financing are as follows:

 The lessee has to pay the rent immediately on acquiring the asset. This will be a
burden as the lessee would not have experienced benefit of the asset leased.
Hence, it will be an extra cash outflow.
 The lessor may sue the lessee in case of damages to the leased goods. Any
default by the lessor or owner of the asset will also affect the lessee.
 Compared to term loans by banks, lease finances is costlier. If there is no
investments allowance, the lease transaction brings tax loss. At the termination of
the lease agreement, the asset is taken by the lessor and the lessee will lose the
residual value.
7. Definethe term “Hire purchase”.

Ans.: According to the Hire Purchase Act, 1972, the term ‘hire purchase’ is defined as, an agreement
under which goods are let on hire and under which the hirer has an option to purchase them in
accordance with the terms of the agreement and it includes an agreement under which:

 The possession of the goods is delivered by the owner thereof to a person on condition
that such person pays the agreed amount in periodic instalment.
 The property in such goods is to pass to such a person on the payment of the last of such
instalment; and
 Such person has the right to terminate the agreement at any time before the property so
passes.

8. Who are called as hirer?

Ans.: The person who obtains possession of the goods under hire purchase agreement. It also includes a
person to whom the hirer’s rights or liabilities under agreement have passed by assignment or by
operation of law are called as Hirer.

9. What is called factoring?

Ans.: The word factor has been derived from the Latin word Facere, which means to “Make or do” i.e.,
to get things done. Factor is an agent as a banking of finance company, engaged in financing the
operations of certain companies.

 It is an arrangement between the financial institution and the business concern which
is selling goods on credit. The factor undertakes the task of recording, collecting,
controlling and protecting the book debts and also purchasing the bills receivables of the
seller, is called factoring.
 Factoring can be both domestic and exports.
 Domestic factoring: The client sells foods and services to the customer and
delivers the invoice, order documents to the factor and informs the customer of
the same.
 Export factoring: In the case of export factoring two factors are involved the
factor in the customer’s country is called import factor. While the client country
is called export factor.
10. What is full factoring?

Ans.: Full factoring is a merger of non-recourse and advance factoring. Full factoring incorporated a
range of services that include collection, credit protection, sales – ledger administration and short
term finance.

SECTION – B
Answer all the questions (5X5=25)

11. (a) Explain the characteristics of financial services?

Ans.: Financial Services:

The term financial service means mobilizing and allocating savings and all activities in the
transformation of savings into investment. It is otherwise called as financial intermediation.
New financial services like insurance and insurance related services, banking and financial
services are most important besides to facilitate international trade and flow of financial
resources. Financial services enable the user to obtain any asset on credit, according to his
convenience and at a reasonable interest rate. Financial service is a service (financial in nature)
offered by a financial service supplier.

Financial services have many characteristics, they are as follows:

 Financial services enable the user to obtain any asset on credit, according to his convenience

and at a reasonable interest rate.

 It extends various types of investment opportunities.

 It provides different types of finance through various credit instruments.

 It creates the savings habit among the different types of people.

 It reduces the risks on investment, both the producers as well as the investors.

 It motivates the investors for maximizing its return.

 It plays an important role in capital market.

 It gives important to both domestic and foreign trade.

  It enables the government to raise short-term and long-term funds to meet both revenue and

capital expenditure.

 It helps backward regions to develop and catch up with the rest of the country that has

developed already.

(OR)
(b) Discuss the problems of financial services firms in India.

Ans.: Financial services firms face many problems in India. Important problems faced by these firms
are as follows:

 Indian financial industry hardly finds suitable personnel to deal with financial services.
Right personnel are not found. Public sector firms face financial constraint to pay higher
salary to right people. Private sectors do not match the offers made by the multi-
nationals.
 Expensive physical accommodation is another problem being faced by the financial
services firms.
 The financial services firms lack core competence.
 They cannot review their performance without a benchmarking. This prevents them to
effect cost-control measures and cost-review techniques.
 They fully depend on fee-based business. It hits the firms severely. It should be fund-
based.
 Lack of proper appreciation of the advantages that could be derived by using the
advances in computer and telecommunication technology has constrained the growth of
the industry.

12. (a) Critically analyse the powers of SEBI.

Ans.: The Securities and Exchange Board of India (SEBI):

The Securities and Exchange Board of India (SEBI) was constituted in 1988 as a body to
regulate and promote the securities market.

Powers of SEBI:

 Prescribing hours of trade.

  Procedure for clearing hours for settlement of transactions, delivery and payment
for securities.
 Submission of report by the clearing house periodically to SEBI with regard to
details of various classes of securities.
 Rules pertaining to prohibition of blank transfers. When securities are traded, the
buyer must receive the security and send it for transfer in his name after signing
the transfer document.
 Different classes of contract and the payment to the clearing house.
 Fixing of prices such as opening, closing, high and low.
 Fixing, altering or postponing settlement dated.
 Prescribing termination of contracts between members.
 Regulating termination of contracts between members.
 In case of default or insolvency of seller or buyer procedure for dealing with such
contracts.
 Procedure for listing securities in stock exchange.
 Settlement of disputes.
 Fixing of fees, fines and penalties.
 Fixing broker commission.
 In case of syndicate transaction or concerning or pool which is illegal fixing of
prices on securities?
 Separating the functions of jobbers and brokers.
 Limiting the volume of trade by individual members.
 Obligation on the part of members to furnish information as required by the
governing body.

(OR)

(b) Explain the SEBI regulations of mutual funds.

Ans.: SEBI regulations in Mutual Funds:

Under SEBI (Mutual Fund regulations, 1993) the SEBI is authorised to issue
guidelines and to supervise and regulate mutual funds in India.
Mutual funds should form trusts, which could be managed by an Asset Management
Company and supervise them by a board of trustees.
  Asset management Companies must have a minimum net worth of Rs. 6 crores of
which the sponsors to contribute at least 40%.
 The SEBI should approve the offer documents of various schemes of mutual
funds.
 The minimum amount to be raised by each scheme does not exceed Rs. 20 crore
for a close ended scheme and Rs.50 crore for an open ended scheme.
 The advertisement code should prescribe norms for fair and correct disclosures in
publicity materials.
The following are the major SEBI’s regulation:
 The mutual fund company must be a registered company.
 Before commencing mutual fund, prior permission of SEBI must beobtained.
 Capital structure must be according to the regulations stipulated by SEBI.
 Every mutual fund company must give the net asset value periodically,
preferably weekly in the leading newspapers of the country.
 Proper information about the mutual funds must be made through
pamphlets, through websites and other methods so that the company is
clear about their investment.
 While investing funds, Mutual Fund Company cannot invest more than 10% of
his investible funds in single company.
 Not more than 10% of the issued shares of the company can be purchased by
mutual fund companies.
 Issuing of dividends, bonus shares, right shares etc. requires prior
permissions of SEBI.
 Any complaints about mutual funds can be made to SEBI directly and
investigation on the working of the investigation will be conducted by SEBI.

1. (a) Explain the advantages of leasing?

Ans.: The following are the advantages of lease financing:
 Acquisition of fixed assets without investment.
 Borrowing capacity of the company remains unaffected.
 Financial analysis takes into account the future rentals, payable as contingent liabilities of
the lessee.
  It is additional source of term finance to industry.
 Cost of equipment is paid from pre-tax profits/own funds of the company towards initial
margin and for repayment of loans.
 Lease rentals can be paid out the additional cash generated from the use of the same
asset.
 It is a simple way of acquisition of assets as compared to raising term finance from banks
or financial institutions to avert delay and cumbersome procedures.
 It enables the lease to deploy their funds for expansion of the liquidity position.
 It is an off the balance sheet transaction.
 The debt equity or current ratio of the lessor remains unaffected by a lease.
 The sale and lease back arrangement enables the leases to borrow cash if any in financial
crisis.

(OR)

(b) Explain the recent trends in lease financing.

Ans.: In India, financing lease is very popular as compared to the operating lease due to high degree
of risk. The banking regulation act was amended to enable the commercial banks to transact
leasing business. The banking subsidiaries have entered in the leasing business. Leasing
provided a high degree of flexibility for servicing the contractual obligations and a
guarantee against obsolescence. The lease rental is treated as revenue expenditure and included in
the profit or loss account of the company.

In view of the advantages of lease finance to the industrial finance corporation and the Asian
development bank have been laying great emphasis on the development of leasing
industry. By the mid - 2004, 700 registered companies have entered in the leasing business. The
Ministry of finance has approved the Indian leasing industry fund to assist the private leasing
companies.

The ICICI and the Asian development bank promoted the fund jointly to cater the
requirements of electronics, manufacturing, automobile and customer durable industries. By
considering the expansion, modernization and diversification plans of corporate sector in the
recent period, the leasing industry has bright prospects in near future.

2. (a) Explain the various rights of Hirer?

Ans.: Rights of the Hirer:

Converting the transaction into sale: The hirer has been given the right to convert the
transaction into a sale at any time he chooses. If he wants so, he has to pay up the balance of
higher purchase price as reduced by rebate to which he is entitled.

Terminating a hire purchase agreement: The hirer can terminate a hire purchase
agreement at any time before the final payment falls due. It is essential that he must give
notice about his intention to terminate a contract.

Appropriating a payment: If the hirer is indebted to the owner in respect of more than one
transaction and he makes a payment which is not sufficient to meet his obligations or liability
under the different agreements.

Assignment and transmission of hirer’s rights: The hirer has been given the right to assign
his right, title and interest under the hire purchase agreement. He can do so, with the consent
of the owner of the goods.

(OR)

(b) Explain the RBI guidelines for Hire Purchase financing.

Ans.: The RBI guidelines of Hire Purchase financing:

 Banks set up subsidiaries for the business of equipment leasing; merchant banking may
undertake hire purchase business through its subsidiary entity.
 Banks interested in hire purchase business should obtain a prior approval from the RBI.
 Banks investors in shares of hire purchase companies should not act as promoters of such
companies.
 Investment in shares of its subsidiary should not exceed 10 percent of the paid up capital
and reserves of the bank.
 Bank subsidiary should not finance to other companies engaged in hire purchase
financing.

3. (a) Explain the characteristics of factoring?

Ans.: There are various characteristics of factoring are as follows:

 Bailment contract:
Factoring is a specialized activity whereby a firm converts its receivables into cash by
selling them to a factoring organisation. Nature of factoring contract is similar to
bailment contract.
 Form of factoring:
Factoring takes the form of a typical ‘invoice factoring’. Since it covers only those
receivables which are not supported by negotiable instruments, such as Bills of exchange,
etc.
 Assignment of debt:
This is the basic requirements for the working of factoring services.
 Fiduciary position of factor:
The position of the factor is fiduciary in nature, since it arises from the relation with the
client firm.
 Professional management:
Factoring firms are professionally competent, with skilled persons to handle credit sales
realizations for different clients in different trades, for better credit management.
 Credit realizations:
They help in avoiding the risk of bad debt loss, which might arise otherwise.
 Less dependence on bank finance:
Factors help in reducing the dependence on bank finance towards working capital.
 Recourse factoring:
Factor will have recourse to the seller in the event of non-payment by the buyers.
 Compensation:
A factor works in return for a service charge calculated on the turnover.

(OR)

(b) What are the recommendations of kalyana sundaram committee to study the factoring
services in India?
Ans.: Kalyana Sundaram Committee was appointed in 1989 by RBI to study the feasibility of
introducing factoring services in India. Accordingly, in 1990 the recommendations of the
committee were accepted. These are:-

 There is more scope for introducing factoring in India, especially through banks.
 Exporters can enjoy more benefits by factoring services.
 The growth of factoring will be fast that within 2 or 3 years, it will be a viable business.
 Export factors can provide various other services also.
 All the industries as well as service can avail factoring services.
 Factors can arrive at a price by taking into account various cost of funds and provide a
low cut fund to the seller.
 The discount and finance house of India ltd (DFHI) can be approached by factors for
discounting time bills of different periods.
 Initially the factoring can be introduced due to their excellent network of branches.
 Banks can take up factoring business due to their excellent network of branches.
 SIDBI can also take up factoring along with other commercial banks for the benefit of
small scale industries.
 The commercial banks should educate the business community on the benefits of
factoring.
 Factors should use computers for efficient and economical operations.
 Competition among factors will ensure efficient service to clients.
 Government can enact suitable legislations to make factoring more attractive.

SECTION – C

Answer any three questions (3X10=30)

4. Discuss the various functions of Merchant bankers.

Ans.: Merchant Banking:

Merchant banking means providing non-fund based financial services. Merchant banks
is a different kind of financial institution, which provides varieties of services like investment
banking, management of customer securities, portfolio insurance and acceptance of bills, etc. The
merchant banking may be in the form of a bank, a company, firm or even a proprietary
concern. It is basically service banking which provides non-financial services such as arranging
for funds rather than providing them.
 There are various functions of a Merchant Banker:

 Corporate counselling: Merchant banker provides counselling services to companies with

regard to their timing of issue of shares, capital structure and other promotional aspects with
regard to the company.
 Project counselling: The new entrepreneur is helped in the conception of idea, identification
of various projects, preparation of projects, feasibility reports, location of factory obtaining
funds, sanctions and approval from state and central government departments.
 Capital structure: The amount of capital required rising of the capital, debt-equity ratio,
issue of shares and debentures, working capital, fixed capital requirements etc. are worked
out.
 Portfolio management: In portfolio management, the merchant banker helps the investors in
matters pertaining to investment decisions. The merchant banker also undertakes the function
of buying and selling of securities on behalf of their client complaints.
 Issue management: Obtaining clearances, drafting of prospectus, underwriting, leasing with
brokers and bankers and keeping constant communication with investors.
 Credit syndication: The financial institutions, joining together for providing finance to a
needy company is known as credit syndication.
 Working capital: Companies are given working capital finance, depending upon their
earning capacities in relation to the interest rate prevailing in the market.
 Venture capital: Venture capital carries more risks and hence very few financial institutions
come forward to finance, as the risk involved is more. The technical competency of the
entrepreneur is an important condition for the venture capital finance.
 Lease finance: The leasing companies are providing finance for procurement of difference
assets that are required by different companies.
 Fixed deposit: Merchant bankers enable companies to raise finance by way of fixed deposits
from the public.
5. Explain the various types of Mutual funds.
Ans.: Investors have the option choosing from a wide variety of schemes in a mutual funds
depending upon their mutual funds. Mutual fund adopts different strategies to
achieve these objectives and accordingly offer different schemes of investments.
Following sections present a detailed classification of mutual funds:

 Operational classification:
  Open ended scheme: When a fund is accepted and liquidated on a continuous
basis by a mutual fund manager it is called open ended scheme. This scheme
provides an excellent liquidity facility to investors although the units of such
scheme are not listed. No intermediates are required. Under the scheme the
capitalization of the fund will constantly change since it is always open for the
investors to sell or buy their share units (shares in USA, Units in India)
 Close ended scheme: When units of a scheme are liquidated (repurchased) only
after the expiry of a specified period it is known as a close ended scheme. Need
for liquidity arises after a comparatively longer period that is normally of the time
of redemption.
The main points of distinction between the open ended and close ended are as follows:

Sl. Features Open-Ended scheme Close-Ended scheme

No

1. subscription Open for public subscription Open for subscription only for limited
throughout the currency of period.
the scheme.

2. Corpus The fund raised from public The corpus of the scheme is fixed for all
keeps varying. time to come.

3. Exit Easy and convenience exit at No exit possible tills the closure of the
anytime. scheme.

4. Liquidation Units can be liquidated Units can be liquidated only at the end
anytime. of the specified period.

5. Maturity No maturity period. Fixed maturity period.

6. Listing No listing and hence not Listed in stock exchange and traded.
traded in stock exchange.

7. Liquidity Through repurchase by MF at Through trading in a stock exchange at

NAV or at any other price as the current market price.
may be determined.
  Interval scheme: It is a kind of close ended scheme with a peculiar feature that it
remains open during a particular part of the year for the benefits of investor either
to off load their holdings or to undertake purchase units at the NAV.
 Return based classification
Under this classification fall those mutual funds schemes that are designed to meet the
diverse needs of investors and to earn a good return. Returns expected are in the form of
regular dividends or capital appreciation or a combination of these two.

 Income fund scheme: The scheme that is tailored to suit the needs of investors
who are particular about the regular returns is known as income fund schemes.
 Growth fund scheme: For such funds investment is made in growth oriented
securities that are capable of appreciating in the long run. Growth funds are also
known as nest eggs are long haul investments.
 Conservative fund scheme: A scheme that aims providing a reasonable rate of
return protecting the value of the investments and achieve the capital appreciation
may be designed as conservative fund scheme. These are known as middle-of-the-
roads funs since such funds offer a blend of all these features.

 Investment based classification:

 Equity fund scheme: A kind of mutual fund whose strength is derived from equity
based investment is called equity fund scheme. They carry high degree
of risk.
 Bond fund scheme: This type of fund carries the advantage of secure and
steady income however such funds have little or no change of capital
appreciation and carry low risk. A variant of this type of fund is called
liquidfunds which specialize in investing in short term money market instruments.
 Balanced fund scheme: A scheme of mutual fund that has a mix of debt
and equity in the portfolio of investments may be referred to as balanced
fund scheme.
 Sectorial fund scheme: When the managers of the mutual funds invest the
amount collected for a wide variety of small investors directly in various
specific sectors of the economy such funds are called mutual funds.
 Fund-of-fund scheme: There can also be funds-of-funds where funds of
one mutual fund are invested in the units of other mutual funds.
 Leveraged fund scheme: The funds that are created out of investments with
not only the amount mobilized from small savours but also the fund
managers who borrow money from the capital markets are known as
leveraged fund scheme.
 Gilt funds: Under this scheme funds are invested only in central and state
Government securities and repose/ reverse repo in such securities and not
in equity or corporate debt securities.
 Index funds: It means that the funds mobilized under such scheme are
invested principally in the securities of companies. Whose securities are
included in the index concerned and in the same weightage?
 Tax saving scheme: Certain mutual fund schemes offer tax rebate on
investments made in equity shares under Section 88 of the Income Tax
Act 1961.
 Gold exchange traded funds (GETFS): Special funds to be introduced by
mutual funds with gold as the under lying assets. The fund aims enabling
the household to buy and sell gold in units for as little as Rs.100
 Real estate fund: This is the fund dedicated to making investment in real
estate. An attractive feature of the REF is that if would possible to own
shares in several properties with an investment of few thousand rupees.
 Other funds: In addition the schemes mentioned above following are some
of the other schemes that are designed and operated by mutual fund
managers:
 Load funds, where mutual fund managers charge a fee over and above
the NAV from the purchaser.
  No load funds, where no load fee is charged because very little effort
is made to promote the sale of the funds unit except through direct
advertising.
 MMMF, which is designed to tax soaps
 Off shore mutual funds, also known as regional or country funds,
where the funds are mobilized from abroad for deployment in Indian
market.
 Other funds such as property funds, art funds, commodity funds,
energy funds etc.

6. Explain the advantages of lease financing?

Ans.: There are many advantages of leasing are as follows:

 Most of the leasing agreements are modified according to the requirements of the lessors.
 The lessee is able to derive the benefits out of asset without owning it.
 The lessee is able to save consideration amount of capital which otherwise will be locked
up in the asset.
 Leasing is the cheapest and fastest mode of acquiring an asset so the creditors point of
view; it is the safer method of finance as they have a good security in the form of asset
view.
 Capital projects can be financed by leasing method and hence most of the financial
institutions have started entering leasing business.
 Because of leasing, the lessee is able to have better debt-equity ratio. He can also go for
additional borrowing in case of business requirements.
 It is only by leasing method, 100% finance is available for buying equipment.
 Equipment which is likely to be obsolete very soon, can be required under operating
leasing.
 Small scale industries will be benefited by leasing as they can go for modernization of
production.
 Technologies will get more benefits by leasing, as the promoters will find it difficult to
contribute margin money.
 The lease charge forms a part of profit and loss account and does not appear in the
balance sheet. Hence, the return on investment for the investment capital.
  Tax benefits are available to both lessor and lessee in leasing.
 Leasing is the best method available to monopoly companies to escape MRTP act. They
are able to operate within restricted capital and thereby do not come under control of
monopoly commission.

7. Distinguish between Lease financing and Hire purchase financing.

Ans.:

S.No Hire Purchase Financing Lease Financing

1. Ownership passes to hirer on payment of the last The lessor is the owner of the asset and the
instalment. lessee can only use the asset.
2. Hirer has to bear the depreciation on the assets hired The depreciation is charged in the books of
by him. the lessor.
3. Cost of acquiring of the asset is low; hence The cost of purchasing asset is very costly,
generators etc. are hiring purchased. since they lease aircraft, ships, etc.
4. The hirer has to pay 25% as margin money and the This is invariably 100% financing. No margin
balance paid in instalments. need to prepaid by the lessee.
5. Maintenance cost to be borne by the hirer of the Lessor bears the maintenance cost in an
asset. operating lease.
6. The hirer can enjoy tax benefits on depreciation and The lessor enjoys tax benefits and
finance charge and the seller towards interest on depreciation and the lessee can enjoy tax
borrowed funds. benefits towards renal and maintenance cost.

7. There are three parties namely seller, financier and There are two parties namely the lessor and
the hirer (buyer). the lessee.
 8. Explain the advantages and disadvantages of factoring.

Ans.: Advantages of Factoring:

 Cost savings:
The elimination of trade discounts.
 Leverage benefit:
It helps to improve the scope of operating leverage.
 Enhanced return:
Factoring is considered attractive to uses as it helps enhance return.
 Liquidity:
Factoring enhances liquidity of the firm by ensuring efficient working capital
management. It helps to avoid increased debts without recourse factoring.
 Credit discipline:
Factoring brings about better credit discipline among customers due to regular
realization of dues.
 Cash flows:
It helps the client meet abilities promptly as and when they arise.
 Prompt payment:
Factoring facilities prompt payment and credits by providing insurance against
bad debts.
 Information flow:
To eliminate delays and wastage of Man-hours.
 Infrastructure:
It towards high level specialization in credit control and sales ledger administration.
 Credit certification:
The factor’s acceptance of the client’s receivables is amount to credit certification by
the factoring agency.
 Better linkages:
Factoring allows for the promotion of linkages between bankers and factors,
 Boon to SSI sector:
It is invariably faces the problem of inadequate working capital.
 Efficient production:
The client can concentrate on functional areas of the business such as planning, purchase,
production, marketing and finance.
  Reduced risk:
Factoring allows for reduction in the uncertainty and risk associated with the collection
cycle.
 Export promotion:
Factoring facilities are designed to help exporters avail of financial assistance on
attractive terms which in turn allows for promotion of exports.

Disadvantages of Factoring:

 There is no insurance available for credit.

 The funds available to the suppliers or sellers are limited.
 The limitations in the assignment of debts create complications in collection
them.
 Factors have to maintain their own collection agencies but the same cannot be
viable for all factors.
 There is lack of proper credit information in the country and it is affecting the
functioning of factoring.
 As the buyers or customers belong to different areas, it is very difficult for the
factor to collect money due from them.

********