RBI Proposes Easier TReDS Onboarding to Help MSMEs Get Faster Access to Funds

The Reserve Bank of India (RBI) has announced a move to simplify the onboarding process for micro, small, and medium enterprises (MSMEs) on the Trade Receivables Discounting System (TReDS).  

This step aims to improve MSMEs' access to timely working capital by removing the requirement for due diligence during the onboarding phase. 

TReDS and Its Role in MSME Funding 

TReDS is a digital platform designed to help MSMEs auction their trade receivables to financiers, allowing them to unlock liquidity from unpaid invoices.  

Established in 2014 and updated in 2018, it facilitates smoother cash flow for businesses.  

The latest change, announced by RBI Governor Sanjay Malhotra during the April Monetary Policy Committee statement, is poised to make invoice discounting more accessible. 

No More Due Diligence in Onboarding 

In a bid to reduce bureaucratic friction, the RBI has proposed eliminating the requirement for due diligence at the time of MSMEs' onboarding onto TReDS platforms.  

This change is intended to simplify registration processes and encourage broader participation, particularly since invoice discounting remains under-utilised despite policy support. 

Expanding the Reach of TReDS 

The RBI's initiative is part of a larger agenda to enhance the ease of doing business for MSMEs, who often experience payment delays and limited access to formal credit channels.  

By removing these bottlenecks, the regulator aims to expand TReDS' reach and improve liquidity flows within supply chains. 

Read More: RBI Keeps FPI Debt Limits Unchanged, Increases Investment Ceiling for FY27! 

Comprehensive Review and Public Consultation 

Governor Malhotra mentioned that the central bank is conducting a comprehensive review of existing guidelines governing the TReDS ecosystem.  

Draft directions incorporating the proposed changes will soon be issued for public consultation, further aiming to fortify credit delivery mechanisms for MSMEs, a segment crucial for employment and economic growth. 

Conclusion 

The RBI's decision to ease TReDS onboarding by removing due diligence for MSMEs is a strategic effort to foster an enabling environment for small businesses. By doing so, the RBI hopes to facilitate quicker access to funds and streamline MSME operations within the market landscape. 

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