Credit and finance for MSMEs: The Trade Receivables Discounting System (TReDS) launched by the Reserve Bank of India (RBI) for MSMEs to finance or discount their invoices has financed 54.56 lakh invoices till February 2023. The amount involved in invoices discounted stood at Rs 1.42 lakh crore, Bhagwat Karad, minister of state in the finance ministry informed Lok Sabha in a written reply to a question on Monday.
In order to address the constraints faced by MSMEs in obtaining finance, particularly in terms of their ability to convert trade receivables into liquid funds, the central bank had issued guidelines for TReDS to permit the non-bank entities to set up and operate digital platforms for financing trade receivables through multiple financiers.
Also read: Insurance companies can now participate in TReDS: RBI
RBI had initially approved three entities RXIL, Invoicemart, and M1Xchange to set up a digital platform under TReDS. RXIL began operations in January 2017 while Invoicemart and M1Xchange started operations in July 2017 and October 2017 respectively. In November 2022, the central bank approved the fourth entity – the global on-demand working capital platform C2FO to set up and operate an invoice discounting platform under TReDS.
Maximum invoices (21.55 lakh) till February this year were financed by MSMEs in Maharashtra followed by 6.82 lakh invoices financed by MSMEs in Tamil Nadu, 5.80 lakh invoices in Karnataka, 2.82 lakh invoices in Haryana, 2.79 lakh invoices in Gujarat, and more since the three platforms began operations, according to the data shared.
Also read: 35,000 invoices worth Rs 7,200 crore financed on TReDS every month: RBI Governor Shaktikanta Das
Importantly, the number of invoices discounted had grown over 2x in FY22 to 17.33 lakh involving Rs 44,111.80 crore from 8.61 lakh invoices involving Rs 19,669.84 crore uploaded in FY21, according to an RBI report. On a monthly basis, average 35,000 factoring units (invoices) worth Rs 7,200 crore are financed on TReDS, RBI Governor Shaktikanta Das had said at the Payment System Operators (PSO) Conference in Kochi earlier this month.
An FU is a standard nomenclature used in TReDS for invoices or bills of exchange containing details related to the sale of goods or services by an MSME seller to the buyer including a corporate, government department or a public sector unit.
Meanwhile, the central bank in February this year had allowed insurance companies for invoice financing under TReDS to increase MSMEs’ participation in the system and enhance their working capital flow.
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