Treds platforms in india see good growth in transactions

Treds platforms in india see good growth in transactions

Subject : Economy

Section: Monetary Policy

Context: Treds platforms in India thrives with a remarkable 70 transaction surge.

Key Points:

• The Trade Receivables Discounting System platforms, introduced by RBI to address MSME liquidity challenges, are thriving in India, with both transaction values and throughput witnessing significant increases
• Corporates are recognising the benefits of TReDS, including price discovery and timely payments to MSMEs
• Growing awareness around its benefits are increasing the participation from corporates and Micro, Small and Medium Enterprises (MSMEs).

What is Treds?

• Introduced by RBI in 2017 to address the liquidity challenges of MSMEs, TReDS is an electronic platform for facilitating the financing/discounting of trade receivables of MSMEs.
• The objective was to solve the problem of delayed payments to MSMEs by providing factoring services.
• RBI set up TREDS under the Payment and Settlement Systems (PSS) Act, 2007.
• 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
• Currently, there are three RBI-approved platforms: Receivables Exchange of India Ltd (RXIL), A Treds Ltd (Invoicemart), and Mynd Solutions Pvt Ltd (M1xchange). To encourage innovation and competition through increased participation, ‘on-tap’ authorisation was introduced in October 2019.
• 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.

How does it work?

• 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.
• A Factoring Unit (FU) is a standard nomenclature used in TReDS for invoice(s) or bill(s) of exchange. Each FU represents a confirmed obligation of the corporates or other buyers, including Government Departments and PSUs.
• In TReDS, FU can be created either by the MSME seller or the buyer. If an MSME seller creates it, the process is called factoring; if the same is created by corporates or other buyers, it is called as reverse factoring.
• 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.