Credit and financing for SMEs: In 2018, the government had instructed public companies and all companies with a turnover of 500 crore or more to register on TReDS through a notification.

Credit and financing for SMEs: Invoice discounting mechanism for SMEs — Trade Receivables Discounting System (TReDS) — regulated by the Reserve Bank of India (RBI) has registered a sharp increase in the value of invoices financed in the current fiscal year relative to a fish FY21, according to the RBI data. The value of trades executed 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 on Monday by MSME minister Narayan Rane in a written response to a question in Rajya Sabha. The total transaction value since the inception of TReDS in 2017 was Rs 69,277.93 crore.

“This jump is due to the successful adoption of TReDS by the private sector as companies have realized they can cut costs through TReDS as suppliers are funded at a very reasonable rate of 4-9 percent per year. So when the financing costs for suppliers fall, they are certainly able to pass that advantage on to businesses,” Sundeep Mohindru, CEO of invoice discount platform M1xchange, told Financial Express Online. The amount funded 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 licensed by RBI in 2017 to operate on the TReDS mechanism. TReDS as a concept was introduced by RBI in 2014 to address the working capital challenge for SMEs due to payment delays by their public and private buyers.

Ketan Gaikwad, the general manager and CEO of RXIL, said the response to TReDS platforms increased during Covid as companies found it necessary to support MSMEs. “MSMEs are the weakest link in a supply chain, so your supply chain is only as weak as its weakest link. So to ensure you have an uninterrupted supply chain, you need to support MSMEs. Companies also benefit from seeking discounts on the prices of SMEs’ goods, as they can be paid on time through TReDS,” Gaikwad told Financial Express Online.

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RXIL had funded bills worth Rs 6,500 crore in FY21 as compared to Rs 13,000 crores this fiscal year. The company has more than 800 buyers and 10,000 suppliers.

Rane also clarified in his response that the RBI has no obligation on any buyer, seller or financier to participate in TReDS, even though the government, through a notification in 2018, banned state-owned enterprises and all companies with a turnover of Rs. instructed 500 crore or more to register on TReDS. Department of Corporate Affairs had also instructed the Registrar of Companies (RoCs) to ensure that all eligible companies are on board the TReDS platform.

In addition, in August last year, the government had amended the Factoring Regulation Act (Amendment) 2021 to allow non-bank finance companies (NBFCs) to register on TReDS for discounting MSME invoices. In February of this year, RBI had also increased the National Automated Clearing House (NACH) mandate limit from Rs 1 crore to Rs 3 crore for settlements related to TReDS. This mattered as the value of MSME bills had risen more than Rs 1 crore to Rs 8-10 crore in recent years, according to Gaikwad.

This post TReDS: Value of MSME invoices funded in FY22 doubles from last year, triples from FY20

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