Factoring, which offers credit facility against outstanding invoices, can give a much needed push to the cash-strapped Indian micro, small and medium enterprise sector, said the Small Industrial Development Bank of India (SIDBI) on Friday.

"We are focusing on filling gap in the MSME ecosystem and creating awareness about factoring which can help MSMEs to do business in new ways," SIDBI CMD Sushil Muhnot said at a seminer in Jaipur.

He said it is expected that MSMEs will stand benefited using factoring services as the factoring organisations will bring in new products.

"Recognising significant contribution of MSMEs in economy, the problem of delayed payments and receivable management and various limitations in the growth of factoring services, the government of India has taken serious efforts," he stated.

Factoring is a form of receivables finance whereby a business sells or assigns its accounts receivables to a finance company (factor) at a discount in exchange for immediate money. This mechanism can help SMEs significantly in managing financial liquidity especially working capital.

"MSMEs (Micro, Small and Medium Enterprises) is one of the important sectors, which is providing employment to 70 million people and manufacturing various products," said the SIDBI official. 

As per latest available figures, only the micro and small enterprise sector (excluding medium enterprises) contributed 8.72% to the nation's GDP and 44.86% to total industrial production in 2008-09.

Estimated contribution of MSMEs in total exports of the country for the year 2007-08, based on data obtained from Export Promotion Councils, was 30.80%.