MSME to MSME or Deep Tier Financing: A Game-Changer for MSMEs

MSMEs form the backbone of India’s economy, contributing significantly to all avenues such as employment, GDP, and exports. Despite their pivotal role, MSMEs often face a common challenge: limited access to working capital. This is where the concept of MSME to MSME financing comes into play, emerging as a revolutionary solution to empower MSMEs across the financial spectrum.

What is MSME to MSME Financing?

Small to Small financing, or MSME to MSME financing, refers to a system where MSMEs can leverage their trade relationships to unlock early cash flow. Unlike traditional financing methods, which primarily cater to larger enterprises, S2S financing extends financial support to tier-2 and tier-3 SMEs, enabling them to compete in a competitive market.

This innovative solution is facilitated by M1xchange, an RBI-licensed  TReDS platform. By digitising the invoice discounting process, M1xchange bridges the financial gap for MSMEs, ensuring liquidity across the value chain.

How does deep-tier financing work?

Deep-tier financing operates on the principle of invoice discounting. Here’s a simplified breakdown:

• Invoice Upload: An MSME seller uploads an invoice to the platform, where their buyer—another MSME—has confirmed the purchase.

• Bidding by Financiers: Once the invoice is approved, financiers, including banks and NBFCs, bid to offer competitive discount rates.

• Immediate Payment: The seller receives the discounted amount immediately, ensuring early access to funds without waiting for the invoice’s maturity.

• Repayment by Buyer: The buyer repays the financier on the due date, completing the transaction seamlessly.

This process ensures that even smaller MSMEs can participate in fostering a healthy financial ecosystem.

Benefits of Deep Tier Financing

• Improved Cash Flow: Delayed payments are a perennial issue for MSMEs, disrupting operations and growth plans. S2S financing ensures timely cash flow, enabling businesses to manage expenses, purchase raw materials, and fulfil orders without financial strain.

• Unsecured Financing: Unlike traditional loans, S2S financing does not require collateral. This makes it an ideal choice for MSMEs with limited assets but strong trade relationships.

• Cost-Effective Solution: With competitive bidding from multiple financiers, MSMEs can secure financing at lower costs compared to traditional borrowing methods.

• Off-Balance-Sheet Advantage: S2S financing is recorded as off-balance-sheet financing, improving the financial health of the MSME without impacting its debt-to-equity ratio.

• Encouraging Financial Hygiene: By participating in a formalised system like TReDS, MSMEs adopt better financial practices, enhancing their creditworthiness and fostering long-term growth.

M1xchange leading the way

M1xchange has pioneered the MSME to MSME financing revolution by offering a seamless, digital platform tailored for MSMEs. With features like:

• RBI licensed: Ensuring credibility and compliance.

• Wide Network: Connecting MSMEs with multiple financiers.

• Transparency: Real-time bidding and secure transactions.

• Ease of Use: User-friendly interface for effortless onboarding and operations.

M1xchange positions itself as the trusted partner for MSMEs looking to unlock their growth potential.

Deep Tier  Financing: Driving India’s next leap

As India’s economic landscape evolves, the role of MSMEs becomes even more critical. S2S financing is not just a financial tool; it’s a catalyst for inclusive growth. By empowering tier-2 and tier-3 MSMEs, this model ensures that prosperity flows to the heart of India’s economic engine.

M1xchange is proud to champion this transformation, enabling MSMEs to lead India’s next leap. Through S2S financing, the journey from small to strong is now more accessible than ever.