RBI expands scope of TReDS platform to allow insurance facility, secondary market ops & to improve cashflow of MSMEs

February 9, 2023

RBI expands scope of TReDS platform to allow insurance facility, secondary market ops & to improve cashflow of MSMEs: RBI expands scope of TReDS platform to allow insurance facility, secondary market ops & to improve cashflow of MSMEs. The guidelines on Trade Receivables Discounting System (TReDS) were issued in December 2014 with the objective of facilitating the financing of trade receivables of MSMEs, the RBI said. The move of the central bank is expected to boost the trade of receivables and increase cash flows to MSMEs.

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Significance of The Expansion of TReDS Platform:

As the volume on these platforms rises, analysts claim that broader involvement by more companies can keep the pricing for receivable discounting in check. Also, flexibility to allow re-discounting by existing holders of such discounted receivables will aid liquidity of participants.
Insurance coverage for the discounted receivables can also enhance the volumes and further reduce the pricing of such insured receivables, however the appetite of insurance companies to issue such coverage remains to be seen.
The TRED platform’s growth into new areas helps to improve the formalisation of the MSMEs lending eco-system.
Secondary market operations will allow financiers to offload their portfolio to other financiers, which would further enhance liquidity on the TREDs platform and, ultimately, for MSMEs.

What is Trade Receivables Discounting System (TReDS) platform:

TReDS is an electronic platform that makes it easier for different lenders to finance and discount the trade receivables of MSMEs (Micro, Small and Medium Enterprises). These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs).

The Payment and Settlement Systems (PSS) Act of 2007 grants authorisation for the payment system TReDS. It is a platform for uploading, accepting, discounting, trading and settling invoices / bills of MSMEs and facilitating both receivables as well as payables factoring (reverse factoring). MSME sellers, corporate and other buyers, including Government Departments and PSUs, and financiers (banks, NBFC-Factors and other financial institutions, as permitted) are direct participants in the TReDS and all transactions processed under this system are ‘”without recourse” to MSMEs.