1. What is Factoring ?

1. Factoring is a fund based financial service that provides resources to finance

receivables, besides facilitating the collection of receivables.
2. What is Forfeiting ?
2. It is a form of financing of receivables arising from international trade. Within
this arrangement, a bank or financial institution undertakes the purchase of trade
bills / promissory notes without recourse to the seller.
3. Mention two examples of Housing Finance .
3. National Housing Bank ( NHB ), Housing Development Finance Corporation
Limited ( HDFC ).
4. The present legal structure of Stock Exchanges in India
A. Capital Issues ( Control ) Act, 1947 Under the Act, any firm wishing to issue
securities had to obtain approval from the Central Government, which also
determined the amount, type and price of the issue. The Act was repealed in 1992
paving way for market determined allocation of resources.
B. Securities Contracts ( Regulation ) Act, 1956 It provides for direct and indirect
control of virtually all aspects of securities trading and the running of the stock
exchanges and aims to prevent undesirable transactions in securities.
C. SEBI Act, 1992 The SEBI Act, 1992 was enacted to empower SEBI with
statutory powers for :
a. protecting the interests of investors in securities;
b. promoting the development of the securities market; and

c. regulating the securities market.

D. Depositories Act, 1996 The Depositories Act, 1996 provides for the
establishment of depositories in securities with the objective of ensuring free
transferability of securities with speed, accuracy and security.
E. Companies Act, 1956 It deals with issue, allotment and transfer of securities
and various aspects relating to company management. It provides for a standard of
disclosure in public issues of capital, particularly in the fields of company
management and projects, information about other listed companies under the
same management, and management perception of risk factors.
F. Prevention of Money Laundering Act, 2002 The primary object of the Act is to
prevent money laundering and to provide for confiscation of property derived
from or involved in money laundering.
5. Importance of Credit Rating
a. To increase investor confidence and guide them.
b. Facilitate decision making.
c. Measures probability of default to meet obligations.
d. To determine the strengths and weaknesses of the company.
e. Rated instrument enjoys higher confidence of the investors.
f. Provides information and guidance to institutional and individual
investors/creditors.
g. Assist the regulators in promoting transparency in the financial markets.

h. Provide intermediaries with a tool to improve efficiency in the funds raising

process.
6. Types of Factoring
a. Notified or Disclosed Factoring When the clients customers are informed
about the factoring arrangement, it is known as notified or disclosed factoring.
b. Non notified or Un Disclosed Factoring When the seller of the goods does
not wish to disclose the fact that the factor is being used, unless there is a breach of
agreement or the factor considers himself to be at risk.
c. Recourse Factoring It is offered at a lower interest rate since the risk by the
factor is low.
d. Non recourse factoring The factor has no recourse to the client in case the
debt ( receivables ) becomes irrecoverable
e. Maturity Factoring No advance payment is made by the factor, rather the
service provided by the factor is purely administrative in nature.
f. Credit Factoring The factor makes an advance payment to the client which may
extend up to 90 percent of the receivables factored.
g. Full Factoring It combines the features of almost all types of factoring
services.
7. Differences between Factoring and Forfaiting
a. Factoring is a technique of short term financing with credit terms between 90
and 180 days.
Forfaiting is a technique used for credit periods from a few months to 7 years.

b. Factoring only covers the commercial risks.

Forfaiting covers commercial risk and also political and transfer risk.
c. Factoring may be with or without recourse to the exporter.
Forfaiting is essentially non recourse in nature.
d. The exporter receives cash only after the bills are collected by the factor.
The exporter may receive cash even before the trade debts are collected by the
forfeiter.
e. Apart from financing the trade receivables, factoring also includes maintenance
of ledgers, collection of debts, and so on.
Forfaiting is a purely financing arrangement.
f. Factoring services are available for domestic and export receivables.
Forfaiting is usually available for export receivables denominated in any freely
convertible currency.
8. Advantages of Credit Rating
a. To the Investors The investor uses the rating to assess the risk level of the
instrument and compares the offered rate of return with his expected rate of return
to optimize his risk return preference.
For investors, rating is a screening tool that influences the composition of their
portfolios as well as their investment decisions.
Some other advantages of credit rating to the investors are
1. Recognition of risk

2. Credibility of the issuer

3. Easy understandability ( ratings ) of the investment proposal
4. Saving of resources ( time and money )
5. Choice of investments
6. Benefits of rating surveillance
7. Low cost information
8. Safeguards against bankruptcy
b. To the Issuers The benefits of rating to the issuers are
1. Easy to raise resources.
2. Reduced cost of borrowing
3. Reduced cost of public issues
4. Rating builds up image
5. Facilitates growth
6. Recognition to unknown companies
7. Sources of additional certification
c. To the Regulators Ratings can be used to assign the risk weights determining
minimum capital charges for different categories of borrower.Rating provides the
regulators with an additional layer of comfort in their assessment of product risks
and overall systemic risks.
9. Objectives of Housing Development Finance Corporation Limited ( HDFC )

1. To increase the number of residential houses in the country by providing housing

finance in a systematic and professional manner.
2. To promote home ownership
3. To increase the flow of funds to the housing sector
4. To strengthen housing finance by improving the domestic financial market and
financial services
5. To develop a close relationship with individual households
6. To maintain its position as one of the premier housing finance institutions in the
country
7. To transform various ideas into viable and creative solutions
8. To provide consistently high returns to the shareholders
9. To diversify activities to client base by entering into mutual funds, leasing,
commercial banking, insurance, etc.
10. To align with national priorities and adopt flexible housing finance policy by
providing more houses to the weaker sections of the society.
Types of loans offered by HDFC
1. For dwelling house Loans are given to individuals , based on their income.
They are repayable over a maximum period of 20 years.
2. Extension of existing houses
3. Purchase of land
4. Repairs/renovation

5. Large scale construction

6. Facility to weaker sections
10. Objectives of Housing and Urban Development Corporation of India
( HUDCO )
a. To provide long term finance for construction of houses for residential
purposes in urban and rural areas, and finance or undertake housing and urban
infrastructure development programmes in the country
b. To finance or undertake, wholly or partly, the setting up of new or satellite towns
c. To subscribe to debentures and bonds issued by the State Housing and Urban
Development Boards, Improvement Trusts, and Development Authorities, etc
especially for the purpose of housing and urban development programmes
d. To finance or undertake the setting up of industrial enterprise for building
material
e. To administrate the amount received, from time to time, from the Government of
India and other sources as grants or otherwise, for the purpose of financing or
undertaking housing and urban development programmes in the country
f. To promote, establish, assist, collaborate and provide consultancy services for
the projects in designing and planning of works relating to housing and urban
development in India and abroad
Housing programmes of HUDCO
1. Urban housing
2. Rural housing

3. Cooperative housing
4. Construction housing
5. Staff rental housing
6. Repairs, renewals and upgradations
7. Night shelters for pavement dwellers
8. Housing schemes through NGOs
9. Housing through private sector
10. Individual housing loans through HUDCO Niwas