Determinants of Accounts Receivables Financing: India and Other Asian Economies Perspectives

Abstract

Globally, factoring services have shown steady growth in facilitating trade finance. The need for such kind of alternative financing became more important particularly after the financial crisis of 2008. Asia witnessed a very high growth in factoring, and it has emerged as the second largest market after Europe. However, factoring in India has not shown significant growth. This study investigates the causes for under-utilisation of factoring in India. Two-step generalised method of moments (GMM) was used to find out the significant variables influencing factoring services and then a comparative analysis of Asian economies was performed based on the significant variables. The results show that manufacturing and allied activities, credit information availability, legal rights for lenders and borrowers and sound enforcement mechanism are crucial in offering conducive environment for factoring. The comparative analysis reveals that China performs well on most of the parameters, whereas India needs to improve on all the parameters, especially the enforcement mechanism. In general, all the Asian countries require improvement in many parameters.