Non-bank Finance I Introduction - Working Capital Management

The two important sources for mobilizing short-term funds for financing working capital requirement have been commercial banks and trade credit apart from support being provided through equity base. However, more stringent credit policies of the banks on one hand and the growing complexities and ever-tightening discipline and other controls attached with bank credit and institutional finance on the other have paved way for the companies to go in for new and innovative sources other thank bank credit. Such an increasing reliance of corporate sector on capital market and use of other innovative resources has helped it to meet the ever-increasing and dynamic quest for working capital finance.

Some of the instruments which were already in vogue for raising project finance have been given a new look so as to meet working capital requirements as one of the approved purposes for which they could be used. The sources of working capital finance other than bank credit have witnessed a great deal of growth and popularity in the past two decades. Raising short-term and medium term debt by inventing and accepting deposits from investing public has become an established practice with a large number of companies both in the private and public sectors.

The spirit experienced in the capital market for new issues of convertible and non-convertible debentures as also public sector bonds have overtaken all other segments. This demand has been further fuelled by the administrative moves liberalizing the scope and purpose of their issues to include financing of working capital requirements. Deposits play very important role in parking of short term idle funds with the correspondingly cash deficit units to the mutual advantage of both parties.

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Working Capital Management Topics