Trading platform for SMEs, TReDS, set to take off after three years

MUMBAI: TReDS, a trading platform for small and medium enterprises, is set to take off after three years, after the government allowed state-run companies to use the platform. It was the pet project of former RBI Governor Raghuram Rajan and could open up a Rs. 20000 crore market for the three firms licensed by the central bank.

In just three months of operations, Invoicemart, the Axis Bank-backed TReDS platform, has so far discounted invoices worth Rs 130 crore while M1 Exchange, promoted by Mynd Solutions, has discounted Rs 75 crore worth of invoices.

"We have already discounted more than 4000 invoices on the platform worth Rs 130 crore. We have also on boarded 180 participants of which, 160 are SME sellers and the rest are buyers and financiers," said Kalyan Basu, MD of Invoicemart.

"This initiative is a huge enabler for SMEs because financing happens in a transparent manner, is without collateral and they can get the best possible rates."

TReDS is an online electronic institutional mechanism which facilitates the financing of trade receivables of MSMEs through multiple financiers. The platform enables discounting of invoices of MSME sellers against large buyers through an auction mechanism that ensures prompt realisation of trade receivables at competitive market rates.

For a bank, any exposure on the platform qualifies for a priority sector lending; they also cost banks marginally but gain access to multitude of SME sellers and buyers without investing in infrastructure.

On October 24, the government made it mandatory for all major public sector units to register on TReDS within 90 days. This is expected to give a major boost to the MSME sector with transparent price discovery mechanism and an additional avenue for getting their receivables funded.

"The volume size everyone is talking about is the market size that exists in the non-digital environment but now this concept will grow by leaps and bounds with digital because it can reach to every supplier and buyer," said Sundeep Mohindru, founder, M1 Exchange.

"We had approached some PSUs before this notification came. While they found it interesting, they were not sure whether they could route their vendor payments through the TReDS portal. But now, they can adopt TReDS openly.”

M1 Exchange has so far on-boarded more than 150 buyers and sellers and discounted more than 800 invoices. It also has the highest number of 10 banks on its platform.

RBI granted licenses to three entities to run such a platform including Receivables Exchange of India (RXIL), a joint-venture between NSE and SIDBI, A Treds and M1 Exchange. Currently more than a dozen banks are live on these three platforms including SBI Global factors, Axis Bank BSE -0.29%, ICICI Bank BSE -0.09%, IDFC Bank, IndusInd BSE 0.86%, Bank of Baroda BSE -0.47%, Kotak Mahindra Bank BSE -0.37%, DBS Bank among others.

The total PSU procurement from micro and small enterprises in 2013-14 was Rs 12,000 crore, or 15 per cent of the total procurement. The Public Procurement Policy makes 20 per cent of all procurement by PSUs be made from MSEs. These companies expect an annual volume of at least Rs. 20,000 crore, which is expected to grow once more MSME buyers and sellers join the platform.

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