Invoice discounting for MSMEs: One of the operators of the Reserve Bank of India’s (RBI) TReDS invoice discounting platform — RXIL, which recorded a profit of Rs 8.5 crore in the financial year 2022-23, is looking to acquire a 35 per cent share of India’s invoice discounting market this year. Ketan Gaikwad, MD and CEO of RXIL told FE Aspire in an interaction that out of the Rs 25 lakh crore credit gap in the MSME sector as of 2018, the invoice discounting market size then was around one-third, that is, Rs 8 lakh crore. “We expect an 8-10 per cent growth in these figures in the past five years.”
For the uninitiated, according to International Finance Corporation in November 2018, the addressable credit gap in the MSME sector is estimated to be Rs 25.8 trillion (Rs 25.8 lakh crore). In addition, a June 2019 report by the UK Sinha Committee constituted by the Reserve Bank of India had estimated Rs 20-25 lakh crore credit gap in the MSME sector.
Gaikwad said the company has been profitable since the last seven quarters. In 2021-22, RXIL ended up with a Rs 27 lakh loss, improving from the Rs 7.5 crore loss in 2018-19 and 2019-20. “It has been a progressive journey for us on the back of increasing transaction volume and curtailing cost,” he added. RXIL’s accumulated losses till last year were around Rs 20 crore and the company plans to wipe them out this year.
RXIL’s transaction value (value of invoices financed) jumped from Rs 2,300 crores in 2019-20 and Rs 6,200 crores in 2020-21 to Rs 13,400 crores in 2021-22 and Rs 25,000 crores in 2022-23. “We are targeting Rs 10,000 crores throughput per month in the next 3-4 years,” Gaikwad said.
The company had earlier this year launched its subsidiary RXIL Global IFSC Limited at ITFS (International Trade Financing Service) Platform at GIFT city in Gujarat to facilitate trade finance for MSMEs for global trade and exports.
“We feel it is very useful for MSME. Our target is medium corporates and MSMEs,” said Gaikwad. RXIL enabled transactions at ITFS this month and expects volumes of $50-60 million till March 2024 and $500-550 million in 2025,” said Gaikwad.
Also read: How MSMEs can get cash against unpaid invoices online? Check more details on TReDS here
Importantly, in June this year, four months after proposing the participation of insurance companies on TReDS to encourage financing of invoices of buyers irrespective of their credit ratings, the RBI had issued a directive to TReDS operators and participants to facilitate insurance for transactions.
So far, financiers such as banks, NBFCs, and others used to bid on the invoice at discounted rates depending on the buyer’s rating. Usually, financiers give credit limits only above BBB and AA or AAA-rated buyers and shy away from buyers with credit ratings below BBB.
“This is where insurance companies will come in and after their due diligence about the buyer and the industry they are in, will provide the coverage. Depending on the risk they are undertaking, the premium will change,” Gaikwad had told FE Aspire.
