Reserve Bank Aims to Ease MSMEs' Operations with TReDS Reform

The Reserve Bank proposes eliminating due diligence for MSMEs utilizing TReDS platforms to simplify business operations. The TReDS platform facilitates trade receivable financing through multiple financiers, ensuring seamless transactions. The scope, expanded in 2023, also includes insurance companies to promote MSME involvement.

The Reserve Bank has put forward a proposal to remove the due diligence requirement for MSMEs when onboarding Trade Receivables Discounting System (TReDS) platforms. This move is intended to simplify the business processes for micro, small, and medium enterprises. TReDS is a technology platform that aids in the financing of trade receivables through multiple financiers, facilitating a seamless transaction process.

The proposal includes establishing a digital network for participants to upload, accept, discount, and settle invoices or bills. The central bank has invited comments on these draft directions for the TReDS platform by May 1. A suitable mechanism to authenticate uploaded invoices or bills will also be implemented, according to the proposal.

Originally introduced in 2014 and updated in 2018, the TReDS guidelines aim to ensure timely access to working capital for MSMEs. The 2023 expansion allows insurance companies to be included as the fourth participant, further promoting ease of doing business and encouraging more MSMEs to engage with TReDS.