Forfaiting

Forfaiting is the purchase of trade debt or receivable, at a discount, without recourse to the exporter or previous holder(s) if the negotiable instrument evidencing the debt is not paid at maturity by the obligor or guarantor. Traditionally forfaiting is fixed interest rate and medium term (3-5 years) financing. It can however, be structured on a floating rate interest basis as well as for longer periods up to 10 years or for shorter periods down to 90 days. Forfaiting is generally suitable for high value exports like heavy machinery, capital goods, consumer durable, vehicles, bulk commodities, consultancy and construction contracts and project exports. Forfaiting as an export financing option in India has been approved by the Reserve Bank of India vide its circular A.D. (G.P. Series) No. 3 dated February 13, 1992. The Forfaiting facility in India has to be provided by an international forfaiting agency through an Authorised Dealer.

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