IRDAI vide notification dated 9th October, 2023 has modified the Trade Credit Insurance Guidelines, 2021. IRDAI has examined the feasibility of Trade Credit Insurance cover against “reverse factoring” transactions on TReDS platforms. Trade Credit Insurance cover is provided to the financiers to cover default of the buyer against the invoices financed on TReDS platform. IRDAI (Trade Credit Insurance) Guidelines, 2021 allows single Invoice covers through bill discounting / factoring on Invoice discounting e-Platforms such as TReDS. However, it restricts cover against reverse factoring transactions to participate as “Fourth Participant” in TReDS.
In view of the fact that through “reverse factoring”, the financiers can take exposure on low rated or unrated buyers provided the default risk is hedged with insurers by taking Trade Credit Insurance cove, in order to facilitate “reverse factoring” transactions on TReDS platform, this modification is enacted.