Trade Receivables and Discounting System (TReDS), an electronic platform for facilitating the financing and discounting of trade receivables of MSMEs through multiple financiers, is back in action with businesses reopening after months under lockdown.
Receivable Exchange of India (RXIL) — set up by SIDBI and the National Stock Exchange (NSE) in 2016 after the RBI allowed TReDS in 2014 — expects business of Rs 6,000 crore for 2020-21 despite the lockdown impact on MSMEs, according to managing director and chief executive officer Ketan Gaikwad.
In an interview to The Sunday Express, he said, “An initial dip in registrations was witnessed with the sudden onset of the lockdown. However, that trend saw a complete U-turn by June-July as RXIL saw a tremendous increase in the number of MSMEs requesting to be onboarded to the TReDS platform.”
TReDS has so far processed over Rs 24,000 crore worth of invoices that helped over 14,000 MSMEs with better liquidity and access to funds on favourable terms since 2017. RXIL, which has 39 financiers and 4,763 registered MSMEs, fulfilled over 237,620 invoices amounting to Rs 6,165 crore, Gaikwad said.
He added that one of the major reasons for the introduction of TReDS is to ensure timely payments to micro, small and medium enterprises (MSMEs), allowing them to access credit at an interest rate which would be offered to their buyers.
Another reason for bringing this platform is to provide MSMEs an alternate source of creating credit history.
The discounting/interest rates are discovered on the platform through an online bidding mechanism which helps in discovering rates as low as 4.8 per cent.
This enables MSMEs lower their interest servicing costs and utilise the savings to expand business, Gaikwad said.
MSMEs get funds credited to their accounts within 48 hours of the bid being accepted.
“TReDS platform gives MSMEs access to a large number of financiers who are willing to place bids on their invoices. One of the biggest advantages of TReDS platform for MSMEs is the fact that the funds disbursed through TReDS are without recourse or collateral. In the case of non-payment by the corporate buyer, the financier would not claim damages from the MSME,” he said.
MSMEs, which are part of TReDS, have been able to avail easier finances. “As per MSME associations, we have helped them reduce the interest costs by 50 per cent. Considering most MSMEs don’t have access to formal sources of finance and secure funds at a minimum interest rate of 18 per cent per annum, while on average the interest rates on TReDS hovers between 8-10 per cent going as low as 4.8 per cent which helps them lower interest costs and utilise the savings to expand business,” Gaikwad added.
TReDS has the potential to handle a throughput of Rs 1 lakh crore with all the three companies — RXIL, A.TReDS and M1xchange — combined, but currently, the total transaction amount is about Rs 15,000 crore.
“There is a lot of unutilised scope. We are actively working on efforts to increase awareness of TReDS platform and its benefits. There are multiple initiatives in the pipeline to make the platform reach more and more MSMEs. Trade credit insurance is one of the recent developments,” the MD and CEO of RXIL further said.
What is TReDS
TReDS is the institutional mechanism created by the Reserve Bank for facilitating the financing of trade receivables of MSMEs from corporate and other buyers through financiers.
Trade receivable is the total amount owed to a company for goods or services it has sold, which is reflected in invoices, but has not yet received payments.
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