Last month, state-run NTPC started transacting with e-bill discounting platform M1Xchange thus facilitating financing of micro, small and medium enterprises (MSME) vendors in the power sector. While this highlighted the debut of one of the biggest PSUs on M1Xchange, the platform has in the past one year on-boarded many corporates, their MSME vendors and financiers (banks and NBFCs) for financing transactions, the aim being to improve the flow of funds to MSMEs by reducing the realisation cycle of receivables.
For the 36.18 million MSMEs in the country, quick and easy access to working capital has been perhaps the biggest hurdle. The manual bill discounting market estimated at `30,000 crore a year sees MSMEs waiting for months to get their bills cleared by big corporates, thus effectively locking up their precious working capital. It was to ensure better management of MSMEs’ receivables financing that the Reserve Bank of India in 2015 gave a go-ahead to three entities—among them, Mynd Solutions which owns M1Xchange—to deal in TreDS (trade receivables discounting system). Mynd Solutions started working on this and launched commercial operations of M1Xchange in October 2017.
“The credit gap for MSMEs is in excess of `2.66 trillion. We offer the right solution by providing competitive finance through a bidding process where financiers take the credit comfort of large buyers,” says Sundeep Mohindru, founder director, M1Xchange. M1Xchange aims to register over 20,000 MSMEs in the next 3-4 years.
Besides Mohindru, the other founders are Vivek Misra, Ramesh Bisht, Sunil Kumar and Jacob Raphael. The promoters and SIDBI Venture Capital Funds have invested `25 crore in the start-up.
M1Xchange facilitates the financing of trade receivables of MSMEs from corporate buyers through invoice financing by multiple financiers. The TReDS platform facilitates discounting of both invoices as well as bills of exchange. As the underlying entities are the same (MSMEs, government departments, PSUs and corporates as buyers), the TReDS platform can deal with both receivables factoring as well as reverse factoring. It charges a one-time registration fee from participants, along with a percentage of the transaction value as a transaction fee.
Says Akhil Handa, head-fintech, New Business Initiative, Bank of Baroda, “We believe that the lineage of M1Xchange is very different from the other two platforms. Its technological capabilities have played a big role in setting up a seamless process on bill discounting.”
More than 24 banks including IDFC Bank, SBI, Bank of Baroda, SBI Factors, Canbank Factors, IndusInd Bank, Kotak Mahindra Bank, Yes Bank, Punjab National Bank, Punjab and Sind Bank, Karur Vysya Bank and South Indian Bank are operating on the exchange. “We have on-boarded over 80 corporates from multiple industries ranging from electrical and electronics, agri and commodities, infrastructure, engineering, automotive along with more than 500 vendors. More than 10,000 invoices have been cleared through this platform,” adds Mohindru.
Agrees Chandra Shekhar, CFO of Vectus, a plastic fabrication firm: “M1Xchange provides ease of operation with minimum documentation and quick receipt of funds. It has helped a lot in easing our working capital requirement and that too at a very competitive rates.”
M1Xchange, along with the other two TreDS platforms, RXIL and A.TReDS, has implemented a blockchain solution to prevent duplicate financing of invoices. They have set up a permissioned ledger, using Monetago’s blockchain solution. Every exchange has its node on the blockchain network. If an exchange tries to register an invoice, which is already registered on any other node, the platform informs about the duplicity and the status of financing, says Mohindru. “If the invoice is financed on another platform, the registration by the next exchange is stopped right there. However, if the invoice is only registered and not yet financed, the exchange can take a decision on whether it wants to register it. At the time of bid acceptance by the interest bearer, the exchange again validates from the blockchain node if the invoice is already factored in any other exchange. If it is, then the bid acceptance is stopped and the invoice gets discarded from the platform,” he explains.