TReDS to help MSME finance, says RBI

Will facilitate discounting of both invoices as well as bills of exchange

Reserve Bank of India (RBI) has proposed a Trade Receivables Discounting System (TReDS), which would be a scheme for setting up and operating the institutional mechanism for facilitating the financing of trade receivables of Micro, Small & Medium Enterprises (MSMEs). The TReDS will facilitate the discounting of both invoices as well as bills of exchange. Further, as the underlying entities are the same (MSMEs and corporate buyers) the TReDS could deal with both receivables factoring as well as reverse factoring so that higher transaction volumes come into the system and facilitate in better pricing.

"MSME sellers, corporate buyers and financiers – both banks and non-bank (NBFC factors) will be direct participants in the TReDS," said RBI in its draft guideline. The bankers of MSMEs and corporate buyers may be provided access to the system, where necessary, for obtaining information on the portfolio of discounted invoices / bills of respective clients.

The TReDS may also tie up with necessary technology providers, system integrators and entities providing dematerialisation services for providing its services.