The pandemic has brought a silver lining to commercial debt platforms



The TReDS platforms, first offered by the Reserve Bank of India in 2015, are intended to help small businesses release their contributions on time. Long payment delays have plagued these businesses for years and added to the need for working capital.

After the MPME seller has delivered goods with an invoice, he can create an invoice or an invoice on the system. The invoice or invoice, called the factoring unit on TReDS, is therefore accepted by the buyer.

This factoring unit is then rated by TReDS. Some of the factors used for such an assessment include:

  • External evaluation of the buyer of the goods.

  • Purchaser’s credit history of the goods.

  • The nature of the underlying instrument.

  • Any previous case of delay or default by the buyer in transactions on the TReDS platforms.

Once assessed, a financier applies a discount rate and pays the MSME its contribution in advance while waiting for the buyer of the goods to make payment. What may have precipitated more activity on platforms in the aftermath of the pandemic is simply the lack of choice and heightened awareness. MSMEs have easy access to the platform and many are now digital savvy, Sankaran said.

Word of mouth and outreach programs may also have widened the reach, Mohindru said. While transactions on the platforms previously originated from around 300 cities, they are now spread across more than 600 cities, he said.

While there have been a few cases of early defects, there has not been a sharp spike during the pandemic. This too may have led to more lenders financing the receivables.

TReDS has not seen an increase in defaults, said Shekhar Bhandari, president of global banking operations at Kotak Mahindra Bank Ltd. The players have become efficient and everyone on the platform knows when a buyer defaults and that has a deterrent effect, he explained.

In fact, there has been a dramatic drop in discount rates. For example, some companies whose invoices had a 7.5% discount rate last year are now discounting less than 5%, according to Gaikwad. It is an important decision, he said.

Rates are now very competitive, ranging from 3.5 to 8 percent, with the lower end of the spectrum in the power supplies, Navratnas segment, Sankaran said.

The pandemic has also encouraged financiers to be more competitive and to manage their working capital more efficiently, Bhandari said. In addition, financing on TReDS is qualified as priority sector loans, encouraging financiers to be more competitive.

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