MSMEs are the back bone of Indian Economy and despite the important role played by them in country’s overall economic growth, continue to face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds.
A Committee on Financial Sector Reforms (FSR), headed by the present Reserve Bank of India (RBI) Governor, Dr. Raghuram Rajan, in 2008, in its report “Hundred Small Steps” recommended setting up of Electronic Bill Factoring Exchanges, whereby MSME bills against large companies could be accepted electronically and auctioned, to ensure prompt realisation of trade receivables at competitive rates.
Based on the FSR Committee recommendations, SIDBI in collaboration with NSE, had taken the initiative to set up an E-discounting platform to support financing of MSME receivables. The platform was named NTREES (Trade Receivables Engine for E-discounting, Prefix ‘N’ stands for NSE and Suffix ‘S’ stands for SIDBI). The NTRESS platform is based on the reverse factoring model, where credit exposure is taken by large Purchaser / Corporates, who offer the invoices drawn by its MSME suppliers for discounting and SIDBI as the Financier discounts the same and credits the proceeds to MSME bank accounts through RTGS. The platform is designed based on the Mexican model (National Financiers – NAFIN) for bidding of MSME receivables and was envisaged to be implemented in three phases. Phase - I supporting single banking arrangement, is currently operational.
To facilitate setting up of Electronic Bill Factoring Exchanges, RBI had issued guidelines related to Trade Receivable e-Discounting System (TReDS) on December 3, 2014. TReDS is an institutional mechanism for facilitating the financing of trade receivables of MSMEs through multiple financiers. TReDS will facilitate by creating an electronic platform / Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned, to ensure prompt realisation of receivables at competitive rates.
MSME sellers, corporate and other buyers, including the Government Departments and PSUs, and financiers (both banks and NBFC factors) will be direct participants in the TReDS. The bankers joining the platform as financiers can offer their bids/ discount rates against each factoring unit (invoice / bill of exchange) and the MSME seller is free to accept any of the bids. Upon acceptance of the bid, the factoring unit will be financed by the concerned banker/financier. Factoring is done without recourse to sellers.
SIDBI along with NSE have been granted approval by RBI to set up and operate TReDS as per the guidelines issued on December 03, 2014 under the Payment and Settlement System (PSS) Act, 2007.
Receivables Exchange of India Ltd (RXIL), a joint venture between SIDBI and NSE has been set up to operate a TReDS Platform for factoring of the invoices of the MSME’s in compliance with TReDS guidelines issued by RBI.