With 25 banks and NBFCs on board, how TReDS platform M1xchange financed Rs 3,000 Cr worth MSME invoices in 2 years

1,000 MSMEs and 1,200 corporates from over 32 cities are registered with the TReDS platform. As many as 25 banks and NBFCs are on board.

 

9th May 2019

Micro, Small and Medium Enterprises (MSMEs) face severe challenges in converting their trade receivables into liquid funds. This means when they sell goods or render their services, they don’t always receive the payments in good time. To address this issue, the Reserve Bank of India (RBI) had published a paper on ‘Micro, Small & Medium Enterprises (MSME) Factoring-Trade Receivables Exchange’ in March 2014. Based on response to the paper and subsequent conversations with stakeholders, RBI released guidelines for setting up and operating a system known as Trade Receivables Discounting System (TReDS). According to RBI, the TReDS would ‘facilitate the discounting of both invoices as well as bills of exchange.’ This meant TReDS would act as a system to facilitate the financing of trade receivables of MSMEs from corporate and other buyers, including government departments and public sector undertakings (PSUs). And the transactions processed under TReDS would be without recourse to MSMEs, meaning that MSMEs (as sellers) could disclaim responsibility from future non-payment of the trade receivables amount (from buyers). Following this, the RBI decided to grant licenses to three TReDS

 

Following this, the RBI decided to grant licenses to three TReDS platforms: M1xchange, RXIL, and A.TReD.And in early 2019, M1xchange raised a Series A round of venture capital from Mayfield India and SIDBI Ventures.

How the M1xchange platform works

In essence, the M1xchange platform links MSMEs with NBFCs and banks who will discount the invoices. It integrates with multiple third party systems including ERP systems of corporations and the financiers’ core banking systems, Sundeep says. “This platform has been designed with the help of UX experts and in consultation with end users of the application”, he adds Through this platform, M1xchange promises MSMEs greater access to finance" at competitive rates and without providing any collateral.” Further, the financing is without recourse to the MSMEs.

 

Sundeep explains, “MSMEs pass on the risk of receivables to the financiers (NBFCs/banks) by selling their receivables. This financing is without collateral of MSME enterprises.”

M1xchange also features a helpline for MSMEs, named ‘Virtual Mind’, which aids them in Income Tax, GST, and other compliances. It also assists them in HR, finance, technology, and IT needs, the company says. How MSMEs can join the platform

 

MSMEs can join the M1xchange platform online. They can auto register online by filling up details of the enterprise and attaching the scanned copies of the required documents. After this, M1xchange will complete the KYC of the enterprise, sign the Master Service Agreement and register the MSME. “This is a one-time documentation which enables MSMEs to finance their invoices for multiple clients. They need not complete documentation multiple times for multiple clients or engage with multiple banks,” Sundeep says. Then, M1xchange shares a ‘welcome kit’ online, along with a login ID and password. The platform also has teams to assist with on-boarding, banking, transactions, and general help. The entire joining process takes 24 to 48 hours. Sundeep says, “A very nominal, one-time registration fee is charged to complete the joining process and KYC. A charge is levied for transacting on the platform transaction wise.” As there is no fixed charge on the platform, MSMEs do not have to bear an ongoing fee. However, M1xchange’s revenue comes from the transaction fees. “We levy transaction fees to MSME enterprises and banks for enabling the transactions. This fee is variable and is charged on transaction value and tenor,” Sundeep adds. How MSMEs can upload their invoices The process is digital and starts with the MSME (the supplier or seller) logging in to the platform and uploading the invoice and filling in related data. This takes a few seconds, according to Sanjay. The supplier authoriser checks the details and digitally signs the transaction, and sends it to the buyer to approve the invoice. “Use of digital signatures for every transaction adds additional security to the system,” Sundeep comments. And once the buyer approves the invoice, it is made available to the financiers for