Credit and finance for MSMEs: The number of invoices uploaded and financed through the Reserve Bank of India’s (RBI) invoice discounting platform Trade Receivables Discounting System (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, said a report by RBI on Tuesday. Sharing the data on progress in MSME financing through TReDS, 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.
Likewise, the volume of invoices financed also grew to 16.40 lakh involving Rs 40,308 crore in FY22 from 7.86 lakh invoices involving Rs 17,080 crore financed in FY21.
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For the uninitiated, TReDS is an electronic platform to help MSMEs in managing their working capital needs by facilitating the financing or discounting of trade receivables through multiple financiers. These receivables can be due from corporates and other buyers, including government departments and public sector undertakings (PSUs). TReDS was introduced by the central bank in 2014 and so far three platforms – RXIL, Invoicemart, and M1Xchange received the RBI’s license to operate TReDS. C2FO, a global on-demand working capital platform, was the latest company to get an in-principle approval from the RBI in November 2022 to set up and operate TReDS.
The growth of the invoice discounting platform was seemingly in contrast to the government’s public policy think-tank NITI Aayog’s report in July this year that claimed TReDS’ bill discounting platforms are yet to see meaningful growth. In a report proposing licensing and regulatory framework for digital banks in India, NITI Aayog had said that while TReDS being “sound in theory as observed by the U K Sinha Committee, the bill discounting platforms have failed to take off and create meaningful volumes of invoice discounting.”
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However, Sundeep Mohindru, CEO, M1xchange, said that TReDS had already discounted invoices worth Rs 75,000 crore till March 2022. “From 2017 to 2021, TReDS discounted invoices worth Rs 37,000 crore for MSMEs while in 2021-22 itself, Rs 38,000 crore invoices were discounted. For the current FY23, the expected volume of discounting will be in excess of Rs 75,000 crore itself,” Mohindru had told Financial Express Online (FE Aspire).
Nonetheless, the Aayog cited three reasons for the slow growth of TReDS’ platforms; first, lack of corporate buyer incentive; second, many corporate buyers already have corporate treasury departments that operate their own reverse factoring programs for their supplier ecosystem. Hence, the traction is low; and third, shallow pools of financing capital as, “Only entities regulated by the Reserve Bank of India can bid on these platforms. In fact, till the recent enactment of the Factoring (Amendment) Act, 2021, only a limited set of NBFCs (NBFC-Factors) other than banks were permitted to finance through these platforms,” it noted.
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