Monday, March 23, 2015


Indian Government to establish Electronic Trade Receivable Platform for SMEs

If you ever watched Seinfeld, you may recall the engagement episode when George Costanza gets engaged and Jerry is about to tell Elaine the news of George's engagement but before he does he teases her saying “All right, Elaine but this is beyond news. This is like Pearl Harbor. Or the Kennedy assassination. It's like not even news. It's total shock.”
I kind of felt that way the other day when I heard The Reserve Bank of India is in the process of establishing an electronic Trade Receivables Discounting System (TReDS) financing of trade receivables of MSMEs, or Micro, Small and Medium Enterprises from corporate and other buyers, through multiple financiers. This is beyond SupplierPay or even the UK Governments actions to legislate big UK corporates publicly presenting their payment terms quarterly in various pay buckets.
The Government of India obviously have a real concern over the access to adequate (and I would argue fair priced) finance. The Reserve Bank of India had published a concept paper on “Micro, Small & Medium Enterprises (MSME) Factoring-Trade Receivables Exchangein March 2014.
The scheme, known as Trade Receivables Discounting System (TReDS) will facilitate the discounting of both invoices as well as bills of exchange and will be focused on orporate and other buyers, including Government Departments and Public Sector Undertakings (PSUs). The TReDS will be set to do both receivables factoring as well as reverse factoring to drive volume and transaction will be “without recourse” to the MSMEs
Imagine if the U.S. Government or some other OECD Government did something like this in their home market and provided the weight of the government behind such a scheme. It would greatly improve the liquidity for many MSME sellers in all different sectors.
While the mechanics of how this will work and function are of great interest, the Regulatory framework for TReDS is of most important. The TReDS would be governed by the regulatory framework put in place by the Reserve Bank of India under the Payment and Settlement Systems Act 2007 (PSS Act). In essence, all stakeholders would be governed by the relevant legal and regulatory provisions of the Government.
I wouldn’t go as far as Jerry and say its total shock. Perhaps the time has come for Government to use their trust and powers to really help the small guy.