Seeking to give a fillip to the MSME sector, insurance regulator IRDAI has proposed changes in guidelines on trade credit insurance.

In an exposure draft on ‘Amendment to Guidelines on Trade Credit Insurance’, the sectoral regulator said changes in the economy, especially in Micro, Small, Medium Enterprise (MSME) sector, has increased the need for trade credit and has enhanced the scope for the credit insurance sector manifold.

“Therefore, in order to give fillip to the growth of credit to insurance market, it is felt necessary to revisit the guidelines which regulate the credit insurance business in India,” it said.

Trade credit insurance is an insurance policy offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.

Insurance Regulatory and Development Authority of India (IRDAI) said it proposes to allow issuance of trade credit insurance policy to RBI registered entities, for conducting factoring business in line with The Factoring Act, 2011.

“This cover shall be restricted to short-term financing against receivables, representing supply of goods, materials and services,” said the exposure draft.

Source: The Financial Express

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