Trade Receivables Discounting System must be promoted more for its ecosystem benefits and has shown growth in the wake of the pandemic-induced crisis. Discuss (200 Words)
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IAS Parliament 2 years
KEY POINTS
· The Trade Receivables Discounting System (TreDs), a bills discounting platform for MSMEs vendors, has shown some growth in the wake of the pandemic-induced crisis, but is still an under-performer in relation to the unmet credit needs of MSMEs.
· Under TreDs, which kicked off in 2017, invoices are placed on a ‘platform’ now provided by three recognised exchanges, with MSME sellers, large buyers and factoring agents (banks and NBFCs) as participants.
· The factoring agents bid for the bill after it is validated by a TreDs-recognised buyer, allowing the seller to opt for the best discounted price.
· The reasons for this reluctance are not clear, which gives rise to speculation on whether these entities are averse to transparent invoicing. A further push from the Centre is called for.
· Factoring agents (now banks and big NBFCs) cannot be increased without due regard for whether they meet RBI’s prudential requirements.
· However, for the vendors to be enthused by TreDs, it needs to offer better rates than existing sources of finance, and these include nimble fintech players who are able to cut through red tape.
· This is despite the latter dominating the MSME universe. True formalisation will become a reality when credit products are structured to meet the needs of the small firms.
Shobana Krishnasamy 2 years
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IAS Parliament 2 years
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