Digitization could ease MSMEs’ access to supply-chain finance4 min read 01 Nov 2021, 10:02 PM IST
The integration of GST data with bill-discounting platforms can help track their creditworthiness
Access to formal credit continues to be a challenge for micro, small and medium enterprises (MSMEs). Lack of reliable financial information is one of the main reasons. Under India’s goods and services tax (GST) regime, however, significant data on the financial health of these enterprises is obtained through monthly returns, electronic invoices and e-way bills. This data can be used for financing mechanisms like the TReDS (Trade Receivables Discounting System), which is an electronic platform for facilitating the financing/discounting of the trade receivables of MSMEs through multiple financiers. These receivables can be due from corporates and other buyers, including government departments and public sector undertakings (PSUs). The receivables are confirmed by buyers through invoices (‘factoring units’) uploaded by MSMEs on the TReDS. Confirmed invoices are bid for by financiers, which include banks or non-bank lenders. Once an MSME selects the best bid, it gets paid by the financier at the agreed rate of financing/discounting. Later, the financier collects the payment from the buyer.