TReDS coverage must be expanded beyond top-rated corporate buyers: Crisil

The government has announced measures in the Union Budget for 2018-19 to strengthen the Trade Electronic Receivable Discounting System (TReDS) platform, which would enable micro, small and medium enterprises (MSMEs) to discount their receivables. 

But most of the bills discounted are drawn on large, top-rated corporate buyers and not MSME buyers.

Facilitating the latter is necessary because the latest Economic Survey shows that more than two-thirds of the sales transactions are between MSMEs themselves. And that number would rise further, based on the revised definition of MSMEs announced after the Survey.

Now the MSMED Act, 2006 mandates that payments must be paid to MSEs within 45 days.

However, CRISIL’s analysis of 3,000 MSMEs reveals that their average receivables exceed 80 days, with promoters funding at least half of the working capital requirement.
 

CRISIL’s analysis, read in conjunction with the Survey findings, leads us to conclude that MSME buyers are also contributing to the stretch in receivables.

It would therefore be salutary if policy makers expand TReDS by allowing discounting of bills drawn on all buyers (large and small), apart from other liquidity facilitations.
 

India has dedicated financial institutions, NBFCs and credit rating agencies with rich experience in the MSME space.

Linking data on the Goods and Services Tax with credit evaluations can help determine the creditworthiness of MSMEs, and lead to better price discovery. Such a facility will also encourage more MSMEs to register with the GST Network and accelerate their formalisation.