Insurance companies can now participate in TReDS: RBI

Credit and Finance for MSMEs: Secondary market operations will also be enabled on TReDS platforms which would allow financiers to offload their existing portfolio to other financiers within the same TReDS platform, if required.

Written by MSME Desk

Updated: February 10, 2023 12:16 IST

MSME, SME, small business, TReDS, insurance facility, working capital, MSME credit, capital flow, invoice financing, Trade Receivables Discounting System, MSME sellers, buyers, credit rating, insurance, insurance companies, RBI

Credit and Finance for MSMEs: To increase MSMEs participation on invoice discounting platform Trade Receivables Discounting System (TReDS) and enhance their working capital flow, the central bank permitted insurance facility for invoice financing under the platform, as per an official statement released by the RBI.

“This will encourage financing / discounting of payables of buyers irrespective of their credit ratings. Accordingly, insurance companies will be permitted to participate as a “fourth participant” on TReDS, apart from the MSME sellers, buyers and financiers,” the statement noted.

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It further mentioned that all the entities or institutions eligible to undertake factoring business under the Factoring Regulation Act will be permitted to participate as financiers in TReDS.

Also, secondary market operations will also be enabled on TReDS platforms which would allow financiers to offload their existing portfolio to other financiers within the same TReDS platform, if required.

For the uninitiated, TReDS is an electronic platform introduced by the RBI in 2014 to help MSMEs in managing their working capital needs by facilitating the financing or discounting of trade receivables through multiple financiers. As of now, three platforms – RXIL, Invoicemart, and M1Xchange received the RBI’s license to operate TReDS, and two more entities have been granted in-principle authorisation.

The number of invoices uploaded and financed through TReDS has more than doubled in the financial year 2021-22 and the success rate has improved to 94.7 per cent from 91.3 per cent a year earlier, as per the RBI, FEAspire reported in December last year.

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The Report on Trend and Progress of Banking in India for FY22 noted that the number of invoices uploaded on TReDS increased to 17.33 lakh involving Rs 44,111.80 crore in FY22 from 8.61 lakh invoices involving Rs 19,669.84 crore uploaded in FY21.

However, out of 4,714 companies with over Rs 500 crore identified by the corporate affairs ministry for TReDS, only 1,673 companies were registered as of January 1, 2023, according to the government data on the MSME dashboard.