Trade Receivables Discounting System (TReDS) platforms are witnessing healthy transactions growth. Growing awareness around its benefits are increasing the participation from corporates and Micro, Small and Medium Enterprises (MSMEs).
Introduced by RBI to address the liquidity challenges of MSMEs, TReDS is an electronic platform for facilitating the financing/discounting of trade receivables of MSMEs. Currently, there are three RBI-approved platforms: Receivables Exchange of India Ltd (RXIL), A Treds Ltd (Invoicemart), and Mynd Solutions Pvt Ltd (M1xchange).
As per the latest RBI data, the three platforms together processed ₹43,580 crore worth of transactions between April and August of the current fiscal as against ₹25,653 crore in the same period of the previous fiscal, recording a growth of 70 per cent. The number of transactions also jumped to 219,758 (141,654) during this period.
Ketan Gaikwad, MD & CEO, RXIL, said the turnaround story of TReDS began shortly after Covid. “Corproates began to realise the benefits of this marketplace, which enables price discovery, timely payments to MSMEs, low interest rates due to competitive bidding besides offering end-to-end digital transaction processing.”
The growth is also evident from the transaction values of these platforms. For instance, the transaction throughput on the RXIL platform more than doubled to ₹6,500 crore in FY21 from ₹2,300 crore in FY20.
The platform crossed the ₹25,000 crore milestone in FY23 and has now set sight on ₹40,000 crore mark for the current fiscal. M1xchange is also targeting ₹40,000 crore worth of throughput on the platform in FY24.
Under the TReDS platform, an MSME seller uploads the invoice for the goods/ services provided to the buyer. Once the buyer accepts the invoice, multiple financial institutions bid to finance the invoice. The seller then accepts the favourable bid and gets the finance within 24 hours of acceptance. The buyer then pays the financial institution on the due date.
Gaikwad says, prior to TReDS, corporates used to have only 1-2 banks providing supply chain/vendor financing solutions, so the rates are mostly decided between these lenders. “Under TReDS, you have 50-60 lending institutions competing. Lenders from any part of India can bid for a particular transaction. Hence , the corporates get the advantage of price discovery.”
For MSMEs, Gaikwad says, TReDS offer the benefit of collateral-free financing and timely disbursal of loans, which helps them plan their working capital needs.
Transactions processed under TReDS are without recourse to the MSME sellers, meaning the seller doesn’t have to pay the financier if the buyer defaults in repayment.
PSUs remain laggard
Although corporates and MSMEs are increasingly adopting the concept of TReDS, the participation from Central PSUs remains abysmally low despite regular push from the Centre. “Hardly 9-10 per cent of transactions on the TReDS platforms pertain to the CPSEs,” Gaikwad says.
An official from another TReDS platform said that PSUs are reluctant to shift from their old ways of functioning and also fear adopting technologies that offer more “transparency”.
However, the platform players are quite optimistic about their growth prospects. “Last year, all the three platforms together did ₹75,000 crore and this year, together, we are planning ₹1.30-lakh crore worth of transactions. This figure can easily go up to ₹5-6 lakh crore in the coming years,” Gaikwad said