Trade Finance
2.75% Interest Subvention in Export Factoring: GIFT City vs India-Based Factors (2026)
Your buyer pays in 90 days, your suppliers need cash today — factoring bridges it, and a 2.75% interest subvention can offset the cost. Here is how 2.75% works, who qualifies, and GIFT City vs India-based factoring under NIRYAT PROTSAHAN.
Your overseas buyer pays in 90 days — your suppliers want payment today
Your overseas buyer may pay you after 90 days. Your suppliers want payment today. Factoring bridges that gap — you sell the receivable and get 70–90% in 24–48 hours — but what if part of the financing cost can be offset through interest subvention? Under the Export Promotion Mission — NIRYAT PROTSAHAN, the Government of India has piloted a 2.75% interest subvention in export factoring for eligible MSME exporters. The benefit is real, but eligibility depends on the framework — it is not automatic for every factoring transaction, and GIFT City vs India-based factoring share the same rules.
Why this matters now
Trade Notice No. 25/2025-26 dated 20 Feb 2026 operationalised “Support for Alternative Trade Instruments” with pilot focus on export factoring. A parallel EPM intervention also offers 2.75% for pre/post-shipment rupee export credit via RBI — don’t confuse the two; this article covers factoring.
Is your HS code eligible for 2.75% subvention?
Check any 6 or 8-digit HS code against the DGFT positive list of 4,185 tariff lines (Annexure-V) — instant result on the official HS Code Subvention Checker.
Check subvention — free →What is interest subvention?
Interest subvention is government support that reimburses part of the interest cost you pay on eligible financing. The lending or factoring institution first sanctions the facility at its commercial rate; the subvention is then claimed and disbursed to you, reducing your effective cost. It is not a discount given upfront on the invoice — it is interest relief on the financing cost element, subject to caps, product and tariff-line conditions.
What is export factoring?
Export factoring is invoice-based export financing: after you ship goods and raise an invoice (e.g., USD 100,000 on 90-day open-account terms), a factor (AD bank, NBFC-Factor under Factoring Regulation Act, or GIFT City Finance Company/IBU) buys the receivable and advances most of it immediately. The factor collects from the overseas buyer at maturity. You get liquidity without waiting for buyer payment; the buyer gets the 60–120 day credit they need.
- Recourse or non-recourse — with recourse you repay if the buyer defaults; without recourse the factor bears more buyer risk (often with credit protection).
- INR or freely convertible foreign currency — both qualify under the pilot for eligible transactions.
- Typically 70–90% advance in 24–48 hours after invoice verification; balance minus discount/fees on buyer payment.
How does the 2.75% benefit work? — an illustrative example
The 2.75% applies only to the interest cost element of the factoring discount, not to fees, credit insurance, SWIFT or FX. The factor’s discount rate itself remains at its commercial discretion. Think of it as interest relief.
| Component | Without subvention | With 2.75% subvention (if eligible) |
|---|---|---|
| Financed amount | ₹1,00,00,000 | ₹1,00,00,000 |
| Headline financing cost (illustrative 10% p.a.) | 10.00% p.a. | 10.00% p.a. (factor’s rate unchanged) |
| Subvention on interest element | — | 2.75% p.a. |
| Effective interest cost (illustrative) | 10.00% p.a. | ~7.25% p.a. on the interest element |
| Caveat | Actual cost depends on tenor, utilisation, positive-list eligibility and ₹50 lakh annual cap | Reviewed bi-annually; benefit prospectively from 20 Feb 2026 |
Read the illustration correctly
This is illustrative — it assumes the full interest element is eligible, the transaction is in the positive list, a valid UIN exists, and the annual cap is not hit. Real saving = eligible interest cost × 2.75% × (tenor/365), capped at ₹50 lakh per MSME per year.
Does 2.75% interest subvention apply to factoring?
Yes — but only for eligible export factoring under the pilot, not for every factoring transaction. The framework is explicit:
- Who: All MSMEs (Ministry of MSME definition) involved in international value chains with valid active IEC and valid Udyam.
- Where: Factoring via entities recognised by RBI or IFSCA — AD banks, factoring NBFCs/Factors in India, and IBUs / Finance Companies/Finance Units undertaking factoring in GIFT City/IFSC. Both routes qualify.
- What: Export factoring on recourse or non-recourse basis, INR or freely convertible foreign currency, for exports under the notified positive list of 4,139 HS six-digit tariff lines (Annexure-V). Covers goods, not services; not for deemed exports (FTP Chapter 7) or exports to SEZs.
- How: Declaration of intent → UIN per factor (valid till financial year-end) before factoring → factor submits IEC-wise monthly claims via designated portal → subvention disbursed to IEC-linked bank account.
- How much: 2.75% per annum on the factoring interest cost element, capped at ₹50 lakh per MSME per financial year; for FY 2025-26 the full cap applies without pro-rata reduction.
- When: On or after 20 Feb 2026 (prospective); revised rates apply only to factoring on/after the notification date. The 2.75% rate is reviewed bi-annually, benchmarking against prevailing risk-free/reference rates in comparable economies.
Use only authoritative sources: DGFT Trade Notice 25/2025-26 and Annexures, IFSCA circular 19 Mar 2026, and the positive-list Annexure-V. Do not assume a transaction qualifies because it is factoring — verify IEC, Udyam, positive-list HS code, RBI/IFSCA status of the factor and UIN before counting the benefit.
GIFT City vs India-based factoring — where the 2.75% fits
| Factor | GIFT City / IFSC (IFSCA-regulated) | India-based factor (RBI-regulated) |
|---|---|---|
| Where financing entity is based | GIFT City IFSC — IBU (bank branch) or Finance Company / Finance Unit registered under IFSCA (Finance Company) Regulations, 2021 / Factoring Regulation Act, 2011 | India — AD bank / factoring company / NBFC-Factor / other RBI-authorised entity |
| Regulatory framework | IFSCA Act, 2019; IFSCA (Finance Company) Regulations, 2021; IFSCA Registration of Factors Regulations, 2024; Factoring Regulation Act, 2011; IFSCA circular 19 Mar 2026 (must extend benefit) | FEMA; RBI Master Directions; Factoring Regulation Act, 2011; RBI / DGFT guidelines |
| Can export receivables be financed? | Yes — IBU / FC/FU undertaking factoring can finance export receivables (trade finance volumes via GIFT finance companies ~USD 9.38m FY24-25, per IFSCA 29 Aug 2025) | Yes — direct via AD bank / factor |
| Applicability of 2.75% benefit | Yes — IBUs and FC/FUs undertaking factoring are eligible financial institutions and must extend interest subvention or equivalent cost support (IFSCA 19 Mar 2026) | Yes — RBI-regulated eligible entities are equally eligible financial institutions |
| Key eligibility conditions | MSME + IEC + Udyam + positive-list HS + UIN per factor + ₹50 lakh cap + not deemed/SEZ + factoring on/after 20 Feb 2026 | Identical — same MSME, IEC/Udyam, positive list, UIN, cap, exclusions and prospective date |
| Currency / financing considerations | INR or freely convertible foreign currency; can be paired with foreign currency accounts that Indian exporters may now open offshore / in GIFT City per RBI-IFSCA facilitation | INR or freely convertible foreign currency (same) |
| Documentation | UIN per factor + factoring agreement + export invoice + IEC/Udyam + proof of positive-list HS + IEC-wise claim via DGFT portal (monthly, online only) | Same — identical portal and claim flow |
| Key advantages | International hub, potential access to global capital, FCI integration in progress, competitive pricing where funded via IFSC | Onshore relationship, rupee working-capital integration, established bank/NBFC network |
Don’t assume GIFT City is automatically cheaper
The 2.75% subvention is identical for both routes. GIFT City is not automatically cheaper — the factor’s headline discount rate, factoring fee, credit protection and FX remain commercial and must be compared all-in. IFSCA’s 21 July 2026 capital-relief framework for factoring (credit insurance/guarantee, two-factor model, exposure and NPA norms) strengthens the ecosystem but does not change the 2.75% eligibility.
Worked example for an exporter — USD 100,000, 90-day terms
An Indian MSME ships USD 100,000 to a US buyer on 90-day open-account terms and factors the invoice. The example is illustrative and assumes positive-list HS code, valid UIN, eligible RBI/IFSCA factor and that the annual cap is not hit.
| Step | Illustrative value |
|---|---|
| Invoice value | USD 100,000 |
| Advance (assume 85%) | USD 85,000 |
| Factoring discount/interest (assume 9% p.a. for 90 days) | USD 100,000 × 9% × 90/365 ≈ USD 2,219 |
| Gross financing cost on interest element | ≈ USD 2,219 for 90 days |
| 2.75% subvention on interest element (if eligible) | USD 100,000 × 2.75% × 90/365 ≈ USD 678 |
| Net financing cost on interest element (illustrative) | ≈ USD 1,541 (2,219 − 678) |
| Effective discount rate (illustrative) | ≈ 6.25% p.a. on the interest element (9% − 2.75%) |
| Add-on costs to compare separately | Factoring fee, credit protection/insurance, processing, SWIFT, FX conversion — not subvented |
Not a guaranteed saving
Actual subvention = eligible interest cost × 2.75% × (tenor/365), capped at ₹50 lakh per year and reviewed bi-annually. If the HS code is not in the 4,139-line positive list, or the factor is not RBI/IFSCA-regulated, or UIN was not obtained before factoring, the benefit does not apply.
What costs should exporters compare?
Exporters should compare the all-in factoring cost, not just the headline discount/interest rate. The 2.75% offsets only the interest element — the rest stays commercial.
- Interest / discounting rate on the advance (the subvented element).
- Factoring fee (flat or % of invoice, often 0.5–3% on factoring).
- Processing / onboarding fee.
- Credit insurance / credit protection / guarantee charges (especially for without-recourse).
- SWIFT / bank charges.
- Legal / documentation / handling charges.
- FX conversion costs (where INR vs foreign currency).
- Other transaction charges (e.g., overdue, collection).
- Compare with pre/post-shipment rupee export credit (also EPM 2.75% via RBI) and with not using factoring — sometimes the cheapest financing is still bank export credit where you already have limits.
Who should consider export factoring?
- MSME exporters (the pilot’s target) with valid Udyam and IEC, involved in international value chains.
- Growing exporters with rising order books who need 60–120 day terms to win orders.
- Exporters selling on 60–120 day open-account terms with strong overseas buyers (e.g., US, EU, investment-grade markets).
- Businesses with recurring export receivables who need non-collateral, cash-flow-based working capital.
- Exporters whose products fall in the notified positive list of 4,139 tariff lines — textiles, engineering goods, chemicals, leather, agro-products and others per Annexure-V.
- Exporters seeking to diversify beyond collateral-heavy packing credit — factoring complements, not replaces, bank export credit.
Sources & regulatory references
Verify every eligibility and claim step against the originals below — the pilot’s details (positive list, portal, UIN flow, cap) are in the annexures:
- DGFT Trade Notice No. 25/2025-26 dated 20.02.2026 — Support for Alternative Trade Instruments under Export Promotion Mission (EPM) — NIRYAT PROTSAHAN (policy framework, operational guidelines, positive list of 4,139 HS six-digit tariff lines, UIN, ₹50 lakh cap, 2.75% rate).
- IFSCA circular dated 19.03.2026 — Support for Alternative Trade Instruments (operationalises DGFT scheme for IBUs and FC/FUs undertaking factoring in GIFT City).
- DGFT Trade Notice 25/2025-26 Annexure-I to V — eligibility, scope, assistance level, claims, reporting, Sub-Committee on Trade Finance composition.
- IFSCA circular 21.07.2026 — Framework on capital relief and prudential norms for factoring transactions (credit protection, two-factor model, exposure, NPA).
- IFSCA press release 29.08.2025 — Enablers for Trade Finance in IFSC (IBU and Finance Company roles, ITFS platforms, FCI integration).
- RBI Master Directions and DGFT EPM Trade Notices on pre/post-shipment rupee export credit interest subvention (parallel 2.75% intervention via RBI — distinct from this factoring intervention via DGFT).
Keep reading
Pre-shipment vs post-shipment — where subvention applies
Packing credit mechanics, rates and how the 2.75% subvention layers on top.
Read packing credit →Export factoring costs and advances
How 70-90% advances and 0.5-3% fees work before you net off subvention.
Read factoring guide →Frequently asked questions
What is interest subvention in export finance?
Interest subvention is government support that lowers your financing cost — the authority reimburses part of the interest/discount you pay. Under EPM — NIRYAT PROTSAHAN, it is 2.75% per annum on the export factoring interest cost element, capped at ₹50 lakh per MSME per year, and credited to your IEC-linked bank account.
What is the 2.75% interest subvention in export factoring?
Under DGFT Trade Notice 25/2025-26 (Export Promotion Mission — NIRYAT PROTSAHAN), eligible MSME exporters get 2.75% per annum subvention on the interest cost of eligible export factoring. It is pilot-based, valid prospectively from 20 Feb 2026, reviewed bi-annually, and limited to factoring through RBI or IFSCA-regulated entities for exports in the notified positive list of 4,139 HS tariff lines. Not for deemed exports or SEZ supplies.
Can exporters get 2.75% interest subvention on factoring?
Yes, if you are an MSME (valid Udyam + active IEC not in DEL) factoring eligible exports via an RBI or IFSCA-regulated factor, for tariff lines in the positive list, with a UIN declaration before factoring, and within the ₹50 lakh annual cap. The factor submits IEC-wise claims via the DGFT portal; you receive the subvention in your IEC-linked account. Not automatic for every factoring transaction.
Does interest subvention apply to factoring from GIFT City?
Yes — factoring via GIFT City / IFSC entities qualifies when the factor is IFSCA-regulated. All IFSC Banking Units (IBUs) and Finance Companies/Finance Units (FC/FUs) undertaking factoring are eligible financial institutions under IFSCA circular 19 Mar 2026 and must extend the 2.75% benefit as interest subvention or equivalent cost support, subject to claims and reporting discipline.
Does interest subvention apply to factoring from an Indian factor outside GIFT City?
Yes — equally. The same DGFT Trade Notice covers factoring via any RBI-regulated entity in India (AD banks, factoring companies/NBFC-Factors) and IFSCA-regulated entities in GIFT City. The rate (2.75%), cap (₹50 lakh), positive list and UIN conditions are identical; documentation and currency (INR or freely convertible foreign currency) are the same.
Who is eligible for the 2.75% benefit?
All MSMEs (as defined by the Ministry of MSME) involved in international value chains with valid active IEC and valid Udyam. Factoring must be via RBI/IFSCA-recognised entities, for exports under the 4,139-line positive list (HS six-digit, Annexure-V), not for deemed exports/SEZ. You must file a declaration of intent and get a UIN per factor before the factoring transaction; the UIN is valid till financial year-end.
How is the 2.75% benefit calculated? Is it on the full factoring cost?
Only on the interest cost element of the factoring discount, not on fees/insurance/FX. Example (illustrative): ₹1 crore financed at 10% p.a. = 10% gross cost; 2.75% subvention reduces effective cost toward ~7.25% p.a. on that interest element, subject to tenor, utilisation, positive-list eligibility and the ₹50 lakh annual cap. The factor’s discount rate remains at its commercial discretion.
Can MSME exporters use factoring? How does the benefit reach them?
Yes — MSMEs are the target group (pilot focus). You declare intent, get a UIN per factor, factor the eligible receivables (recourse or non-recourse, INR or foreign currency), the factor submits monthly IEC-wise claims online; after verification, the subvention is disbursed to your IEC-linked bank account. For pre/post-shipment rupee export credit, a parallel EPM intervention also offers 2.75% via RBI through lending banks — distinct from this factoring intervention via DGFT.
What is the difference between factoring and export finance? What is actual cost after subvention?
Export finance is the umbrella (packing credit, post-shipment credit, factoring, forfaiting). Factoring is one tool — selling receivables for 70–90% advance in 24–48 hrs. Actual cost after subvention = headline discount/interest + fees (factoring fee, processing, credit protection, SWIFT, FX) minus the 2.75% subvention on the interest element (if eligible and capped). Always compare all-in cost, not just the headline rate.