The MSME Development (Amendment) Bill and measures for the Trade Receivables Discounting System (TReDS) — be it in Union Budget FY27, the Reserve Bank of India’s (RBI’s) revised directions, or the Ministry of MSME’s mandate requiring Central Public Sector Enterprises (CPSEs) to route invoice settlements through TReDS — point to a coordinated effort to improve working capital access for small businesses.
The Bill seeks to reinforce the mechanism for addressing delayed payments, improve enforcement of arbitral awards in favour of MSMEs and give states greater flexibility in constituting facilitation councils. While these changes strengthen dispute resolution, they also recognise that businesses need access to liquidity before payments are realised.
Numbers underline the scale of the challenge. MSMEs contribute about 31.1 per cent of India’s gross domestic product, 35.4 per cent of manufacturing output and nearly 48.6 per cent of exports. Yet around ₹8.1 trillion remains locked in delayed receivables, constraining growth for millions of enterprises. Unlike conventional working capital loans that rely on collateral or the borrower’s balance sheet, receivables financing is based on approved invoices. The method allows MSMEs to convert receivables into immediate working capital. For many small businesses, timely access to liquidity can mean the difference between meeting the next order and missing a growth opportunity.
Union Budget FY27 marks an important step in expanding the role of TReDS within the MSME financing ecosystem. Mandating TReDS as the settlement platform for CPSE purchases is expected to bring a larger volume of invoices into formal financing channels. Extending the Credit Guarantee Fund Trust for Micro and Small Enterprises-backed credit guarantees for invoice discounting can encourage greater lender participation, while the proposed integration of the Government e-Marketplace (GeM) with TReDS could simplify financing for suppliers to government buyers. Treating TReDS receivables as asset-backed securities could also deepen secondary market liquidity. With over ₹10 trillion already unlocked through TReDS, the reforms build on an ecosystem that is steadily gaining scale.
This strengthens the regulatory changes made last year through higher classification thresholds, enhanced credit guarantee cover, dedicated credit cards for micro enterprises, stronger support for exporters and startups, and a ₹10,000 crore fund-of-funds.
The RBI’s revised TReDS directions complement these policy measures by enhancing the platform’s operating framework. Mandatory validation of MSME sellers, transparent competitive bidding among financiers, filing the assignment of receivables with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India and wider access to government-backed guarantee cover are not merely procedural changes. They are expected to improve lender confidence by strengthening verification standards and bringing greater transparency to invoice ownership. This, in turn, can encourage larger lender participation for MSMEs.
The Ministry of MSME’s notification requiring CPSEs to route invoice settlements through RBI-regulated TReDS platforms builds on this momentum. Besides encouraging timely payments, it brings a much larger supplier base onto formal receivables financing platforms. The proposed GeM-TReDS integration further supports this objective by reducing friction between procurement and financing.
While the policy framework is steadily taking shape, its success will depend on implementation. Delayed payments continue to affect MSMEs across private supply chains and state-level entities. Expanding involvement beyond CPSEs will broaden the benefits of these reforms. Awareness is equally important. Many eligible MSMEs still rely on conventional borrowing despite having approved invoices that can be financed through digital platforms.
The next phase will depend on execution and adoption, determining whether receivables financing becomes a mainstream financing option for MSMEs.
The writer is founder-promoter, M1xchange. This column was edited for space
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