The Reserve Bank of India said the scope of activities of the Trade Receivables Discounting System (TReDS) platform will be expanded to provide insurance facility, allow entities undertaking factoring business as financiers, and enable secondary market operations. 

This will provide further impetus to TReDS platforms, which facilitate the financing of trade receivables of MSMEs. These measures will help in further improving the cash flows of MSMEs, said the RBI.

The central bank observed that insurance facility will now be permitted on TReDS. This will encourage financing / discounting of payables of buyers irrespective of their credit ratings.

Accordingly, insurance companies will be permitted to participate as a “fourth participant” on TReDS, apart from the MSME sellers, buyers and financiers.

All entities / institutions eligible to undertake factoring business under the Factoring Regulation Act will be permitted to participate as financiers in TReDS.

Secondary market operations will now be enabled on TReDS platforms. This would allow financiers to offload their existing portfolio to other financiers within the same TReDS platform, if required, RBI said.

Prakash Sankaran, MD & CEO, Invoicemart, observed that TReDS volumes have doubled in the last 2 years and increase in liquidity on the platforms is critical for scale up.

“With insurance companies being allowed to participate as fourth participant on TReDS we expect appetite for a large segment of moderately rated corporates to increase.

“The secondary market for financiers to sell their TReDS portfolio will free up capital to finance fresh transactions on the platform,” he said.

Sundeep Mohindru, Promoter and Director, M1xchange, said the announcement relating to insurance facility on TReDS will support lot of SMEs doing business with medium sized firms, which don’t have good rating.

“If there’s any default by the buyer, the bank can recover through insurance cover. This is a progressive step that will help thousands of MSMEs to get their invoices discounted.

“Provision of Rediscounting on TReDS will further enhance liquidity for MSME invoice discounting on TReDS,” Mohindru said.

Financiers will be able to sell their portfolio of invoices discounted on TReDS to other financiers thereby freeing up the liquidity for supporting the MSMEs further, he added.