Credit and Finance for MSMEs: Invoice discounting mechanism for MSMEs — Trade Receivables Discounting System (TReDS) — regulated by the Reserve Bank of India (RBI) has registered a steep rise in the value of invoices financed in the current financial year vis-a-vis FY21, as per the RBI data. The value of transactions undertaken on TReDS platforms in FY22 doubled to Rs 34,362 crore from Rs 17,080 crore amid Covid in FY21, and more than tripled from Rs 11,165 crore during pre-Covid FY20. The data was shared by MSME Minister Narayan Rane in a written reply to a question in Rajya Sabha on Monday. The overall transaction value since the inception of TReDS in 2017 stood at Rs 69,277.93 crore.
“This jump has been due to the successful adoption of TReDS by the private sector as enterprises have realised they can save cost through TReDS as vendors are financed at a very reasonable rate of 4-9 per cent per annum. So, when the cost of funding for vendors reduces, certainly they are able to pass on that benefit to corporates,” Sundeep Mohindru, CEO at invoice discounting platform M1xchange told Financial Express Online. The amount financed by M1xchange in FY21 was Rs 5,700 crore which more than doubled to Rs 12,000 crore in FY22. The combined number of buyers and sellers on the platform was 12,000.
M1xchange along with Invoicemart (joint venture of Axis Bank and mjunction services), and RXIL (joint venture between SIDBI and NSE) were the three platforms issued licenses by RBI in 2017 to operate on the TReDS mechanism. TReDS as a concept was introduced by RBI back in 2014 towards addressing the working capital challenge for MSMEs due to delays in payment from their public and private buyers.
Ketan Gaikwad who is the managing director and CEO at RXIL said the response to TReDS platforms increased during Covid as corporates found it necessary to sustain MSMEs. “MSMEs are the weakest link in a supply chain and hence, your supply chain is as strong as the weakest link. So, to make sure you have an uninterrupted supply chain, you need to support MSMEs. Corporates also benefit in terms of seeking discounts on prices of goods from MSMEs as latter are able to get payments on time through TReDS,” Gaikwad told Financial Express Online.
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RXIL had financed invoices worth Rs 6,500 crore in FY21 in comparison to Rs 13,000 crores this fiscal. The company has over 800 buyers and 10,000 suppliers.
Rane also clarified in his response that the RBI has not made it compulsory for any buyer, seller or financier to participate on TReDS even as the government, through a notification back in 2018, had instructed public sector enterprises and all companies with a turnover of Rs 500 crore or more to register on TReDS. Ministry of Corporate Affairs had also instructed the Registrar of Companies (RoCs) to ensure all eligible companies are on-boarded on the TReDS platform.
Moreover, the government had amended the Factoring Regulation Act (Amendment) 2021 in August last year to permit Non-Banking Finance Companies (NBFCs) to register on TReDS for discounting MSME invoices. In February this year, RBI had also enhanced the National Automated Clearing House (NACH) mandate limit from Rs 1 crore to Rs 3 crore for settlements related to TReDS. This had assumed significance as the value of MSME invoices had increased beyond Rs 1 crore over the past few years to Rs 8-10 crore, according to Gaikwad.