The DGFT Export Factoring Subvention Scheme provides 2.75% interest subvention on eligible export factoring transactions for MSMEs, subject to a ₹50 lakh annual cap per exporter.
The Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry, introduced this initiative under the Export Promotion Mission (EPM) – NIRYAT PROTSAHAN, effective 20 February 2026.
The scheme promotes structured trade finance mechanisms and reduces the cost of export receivables discounting for MSMEs.
Objective of the Scheme
The scheme aims to:
- Improve MSME access to export finance
- Promote formal factoring channels
- Reduce receivables discounting costs
- Enhance liquidity in international trade transactions
- Strengthen transparency in trade finance mechanisms
The scheme currently applies exclusively to export factoring arrangements.
Eligible MSME Exporters
An exporter must satisfy all of the following conditions:
- Classified as an MSME under Ministry of MSME norms
- Valid and active Importer Exporter Code (IEC)
- Valid Udyam Registration
- Not listed in the Denied Entity List (DEL)
- Engaged in international value chains
MSMEs that graduate out of MSME status remain eligible for three years from reclassification, as specified.
Eligible Export Factoring Transactions
Interest subvention applies only to:
- Export factoring transactions
- Recourse or non-recourse arrangements
- Factoring in INR or freely convertible foreign currency
Factoring must be undertaken through:
- RBI-regulated entities, or
- IFSCA-regulated entities
Exports must fall within the notified Positive List of 4,139 tariff lines at the HS 6-digit level (Annexure V).
Transactions Not Covered
The scheme does not cover:
- Deemed exports
- Exports to SEZ units
HS code eligibility must be verified before entering into factoring arrangements.
Financial Assistance Structure
Subvention applies strictly to the interest component of eligible factoring transactions. Core financial parameters thereof are as under:
- Subvention Rate: 2.75%
- Annual Cap: ₹50 lakh per MSME per financial year
- Review Cycle: March and September
- Eligible Period: Transactions undertaken on or after 20 February 2026
The factoring discount rate remains commercially determined by the factoring entity.
Subvention does not apply to:
- Processing fees
- Service charges
- Documentation charges
- Other ancillary costs
The ₹50 lakh cap applies fully for FY 2025-26 without pro-rata reduction.
Mandatory Two-Stage Process
The scheme operates through a structured online compliance mechanism:
Stage 1: Intent-to-Claim (Pre-Factoring Requirement)
Before availing factoring, the exporter must:
- File an online declaration
- Provide details of HS codes
- Identify the factoring entity
- Specify recourse or non-recourse structure
- Declare transaction currency
- Obtain a Unique Identification Number (UIN)
Key procedural rules:
- UIN is factor-specific
- Separate UIN required for each factoring entity
- UIN valid until the end of the financial year (unless otherwise specified)
Factoring undertaken without prior filing may become ineligible.
Stage 2: Monthly Subvention Claim
After export and factoring:
- The factoring entity files IEC-wise claims online on a monthly basis
Claim submission includes:
- Invoice details
- Shipping bill details
- Benchmark rate reference (e.g., SOFR or equivalent)
- Spread or margin
- Total interest charged
- Factoring fees
Subvention is credited directly to the exporter’s IEC-linked bank account.
Offline or manual submissions are not permitted.
Governance Structure
The scheme is overseen by a Sub-Committee on Trade Finance, comprising representatives from:
- Ministry of MSME
- DGFT (EPM Section)
- Department of Commerce
- Department of Financial Services
- CGTMSE
- EXIM Bank
- ECGC
- Indian Banks’ Association (IBA)
- IFSCA
- Factoring NBFCs
The Sub-Committee recommends subvention rates, tariff line eligibility, and financial parameters. DGFT administers implementation.
Compliance Conditions Exporters Must Monitor
Exporters are responsible for ensuring:
- Subvention claimed only for eligible HS 6-digit tariff lines
- No duplication under other Central or State interest support schemes
- ₹50 lakh annual cap not exceeded
- Aggregate subvention across multiple factors tracked
- Excess claims avoided
Recovery proceedings may be initiated in cases of over-claim or misreporting.
Compliance Checklist
Exporters should institutionalise structured internal controls:
1. Eligibility Verification
- Active IEC
- Valid Udyam Registration
- Not listed in DEL
- HS code listed in Positive List
- Factoring entity regulated by RBI or IFSCA
2. Before Entering Factoring Arrangement
- File online Intent-to-Claim
- Obtain factor-specific UIN
- Verify HS code eligibility
- Estimate projected subvention against ₹50 lakh cap
3. During Factoring
- Execute formal factoring agreement
- Confirm recourse or non-recourse structure
- Identify benchmark rate (e.g., SOFR)
- Document margin/spread
- Link invoice to factoring contract
4. Post-Export Documentation
- Shipping bill generated
- Invoice assignment recorded
- Factoring reference ID maintained
- Payment and interest computation documented
- Hedging records retained, if applicable
5. Claim Monitoring
- Confirm monthly submission by factor
- Verify interest computation accuracy
- Monitor cumulative annual subvention
- Maintain centralised claim register
Key Risk Areas
Exporters should closely monitor:
- Factoring without prior Intent-to-Claim
- Claiming for non-notified HS codes
- Exceeding ₹50 lakh annual cap
- Duplicate benefits under other interest schemes
- Factoring through unregulated entities
- Incorrect interest component computation
Illustrative Cost Impact
For example, if:
- Factoring interest rate = 9.50%
- Subvention = 2.75%
Effective interest cost (subject to eligibility and cap) = 6.75%
Total benefit remains capped at ₹50 lakh per financial year.
Strategic Considerations for MSMEs
The scheme benefits:
- Exporters offering extended credit terms
- Businesses operating on open account models
- MSMEs facing working capital constraints
- Sectors covered under the 4,139 notified HS tariff lines
By reducing financing costs, the scheme enhances liquidity, improves cash-flow stability, and strengthens global competitiveness.
MSMEs should evaluate factoring economics, file Intent-to-Claim proactively, and implement disciplined cap-monitoring mechanisms to optimise benefits under the scheme.
Source: DGFT Trade Notice 25/2025-26 dated 20/05/2026 regarding Guidelines on DGFT Export Factoring Scheme (2.75% Interest Support to MSMEs)