The Indian government has over the past few years tried to strengthen the position of Micro, Small and Medium Enterprises (MSMEs) in pursuit of its overall goal of improving the ease of-doing-business-score in the country. One such measure is the introduction of TReDS, an acronym for the Trade Receivables Discounting System, propagated by the RBI. TReDS is an online mechanism for providing early payment to suppliers, mandated to three platforms (RXIL, A.TReDS and M1Xchange) by the RBI. TReDS has MSME suppliers looking to cash in their receivables onboarded and matches them with financiers willing to buy out these receivables. These financiers, which include both banks and NBFCs, bid for the MSME suppliers’ receivables. The suppliers accept the best offer of a trade discount for their invoices in return for receiving payment early.
The government has taken gradual steps to ensure that TReDS is implemented on a large scale. When established, it was a voluntary platform. First, all central public sector undertakings were made to compulsorily bring their MSME suppliers onto the platform. Today, this rule extends to all companies with a turnover of greater than INR 500 crore, whether private or public. Even on the financier side, the TReDS platform initially allowed only banks. However, the recent budget has allowed for NBFCs to come onto the platform, increasing the quantum of capital available. NBFCs also tend to have less stringent credit norms for companies, bringing more MSME suppliers into the fold.
While TReDS is a commendable initiative, it operates in a different manner to most other technology-driven early payment providers like CredAble. TReDS is limited to MSME suppliers, whereas CredAble allows for any supplier to be onboarded, irrespective of size and scale. Further, TReDS functions as an open marketplace platform. This implies that any MSME supplier can get onboarded, without approval from the end client. CredAble, on the other hand, follows a top-down approach that ensures that our corporate clients are in complete control of the entire process, be it from selecting which suppliers and invoices to onboard for the program, to approving and assigning invoices for early payment. Further, CredAble provides for a one-to-one mapping of invoices with financial partners, allowing for transparency and certainty of volume on the platform. TReDS on the other hand, has a secondary exchange, where financiers can buy out each other’s receivables. CredAble has developed a proprietary Credit Assessment Model that assists in best price discovery for our stakeholders. Finally, unlike TReDS, financial institutions do not bid on the platform, but instead operate on mutually negotiated, pre-determined rates, in order to avoid bidding wars with each other.
TReDS and CredAble are not direct competitors. In fact, TReDS compliance has boosted CredAble’s growth. Although TReDS registration for the aforementioned companies is compulsory, participation isn’t. Large private sector companies typically have less than 5% of their entire supplier base active on TReDS. However, since they are obliged to integrate into TReDS, they often find it worth the time and effort to go the distance and provide an early payment platform to all their suppliers. This is where CredAble steps into the picture. Not only does CredAble fill the gaps for suppliers other than MSMEs, but we also offer other programs that cover pre-invoice financing and distributor receivables financing. Corporates tend to favour an all-encompassing supply chain finance platform, as it requires one-time integration, and is essentially free to implement, with no upfront, registration, processing or hidden costs.
Our outlook on the future of this segment in India is very bullish. Over the last decade, technology has become an omnipresent feature in financial services. The Government of India and the RBI have also caught onto the role technology plays in financial inclusion, be it for individuals or companies. Private FinTechs are already beginning to tie up with TReDS platforms (CredAble itself has a partnership with one of the platforms). The advent of more government mandated programs will result in potential synergies for CredAble, which ultimately benefits our clients, as well as their suppliers and distributors. We must because we can!