Plans underway for bigger role for TReDS, to enrol million MSMEs in 2 years

It is also expected that the Union Budget for FY26 may have more measures for MSME financing, with a bigger role for TReDS

The country’s Trade Receivables E-discounting System (TrEDs) platforms are drawing up plans to on-board as many as a million micro, small, and medium enterprises (MSMEs) over the next couple of years. 

 

The issue figured in recent discussions between the Reserve Bank of India (RBI) and firms in the TReDs space. Other matters which were taken up as part of the stock-taking were the status of inclusion of insurance companies as the “fourth participant” on TReDS (apart from MSME sellers, buyers and financiers), and its linkage with the Goods and Service Tax Network (GSTN). 

 

TReDs are online platforms which enable suppliers to MSME to discount their invoices and receive payments ensuring the conversion of their receivables into funds in a short period. As of now, there are three TReDS platforms: Receivables Exchange of India, M1xchange, and Invoicemart. 

 

It is expected that the Union Budget for FY26 may have more measures for MSME financing and TReDs may get to play a bigger role. To broaden the footprint of TReDS, the Budget for FY24 had lowered the threshold for companies to Rs 250 crore from Rs 500 crore, and had required the presence of all central public sector enterprises on them. This is expected to be complied with by the end of the current financial year.  

 

In FY23, the number of registered MSME sellers on TReDS increased by nearly 51 per cent, while the number of buyers was up 35 per cent, pointing towards improving participation on these platforms. The number of invoices uploaded and financed grew by more than 56 per cent during this period with the success rate remaining steady at 94 per cent. The success rate is defined as per cent of invoices uploaded that get financed. 

 

As mentioned in the UK Sinha-led 'Expert Committee on MSMEs' report (June 2019), buyers tend to use them as an alternative to banks. In order to delay payments, buyers often raise objections or point out errors in the bills submitted. Credit or adjustment notes are often used to avoid cash payment. Strict legislative measures of payments within fixed days (and penalty in the form of charging interest) have had limited effect, leading MSME sellers to complain as loss of future business is feared. 

 

TReDS addresses the credit gap of MSMEs – estimated at around Rs 52.2 trillion – by connecting them with banks and clients. According to RBI Deputy Governor Michael Patra, these platforms lead to a reduction in funding costs of up to 2.5 percentage points, and the value of invoices financed through TReDS has surged more than 23 times. As of October 2024, around 5,000 active fintechs are involved in providing various financial and technical solutions to businesses, including MSMEs, helping businesses better manage their operations and improve supply chain finance.   Progress in MSME Financing through TReDS (in Rs crore) 

Invoices Uploaded			Invoices Financed
Year	Number	Amount	Year	Number
2018-2019	251,695	6,695	232,098	5,854
2019-2020	530,077	13,088	477,969	11,165
2020-2021	861,560	19,669	786,555	17,080
2021-2022	1,733,553	44,111	1,640,824	40,308
2022-2023	2,724,872	83,955	2,558,531	76,645

     Source: RBI

A bigger role 

 

 

The Union Budget for FY26 may announce more measures for MSME financing and TReDs may get to play a bigger role. 

 

To broaden the footprint of TReDS, the Union Budget for FY24 had lowered the threshold for companies being on them to Rs 250 crore from Rs 500 crore, and all central public sector enterprises were required to sign up. 

 

There are currently three TReDS platforms: Receivables Exchange of India, M1xchange, and Invoicemart. 

 

TReDS addresses the credit gap of MSMEs estimated at around Rs 52.2 trillion by connecting them with banks, and clients.