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Treds platforms in india see good growth in transactions

  • October 3, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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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.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs
economy Treds platforms in india see good growth in transactions

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