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RBI releases guidelines for trading platform for MSME receivables

Mumbai, Dec 4)  : In a move that will help micro, small and medium enterprises, the Reserve Bank of India (RBI) has allowed the setting up of an exchange based trading platform that will facilitate the financing of trade receivables of MSMEs from corporate and other buyers, including government departments and public sector undertakings (PSUs) through multiple financiers.

The apex bank announced the guidelines for setting up and operating the Trade Receivables Discounting System (TReDS) yesterday. 

The RBI Governor, Raghuram Rajan in his statement on September 04, 2013 had announced the intention to facilitate Electronic Bill Factoring Exchanges in the country, which could electronically accept and auction MSME bills against large companies so that MSMEs could be paid promptly.

MSME sector faces the problem of delayed payment mainly due to their dependency on their buyers within corporate and other sectors, including government departments/undertakings. They are often unable to take up the problem of delayed payments through appropriate institutional setup created for the purpose.

“TReDs is a scheme for setting up and operating the institutional mechanism to facilitate the financing of trade receivables of micro, small and medium enterprises (MSMEs) from corporate and other buyers, including government departments and public sector undertakings (PSUs) through multiple financiers,” RBI said in a notification.

The guidelines outline the requirements and the basic tenets of operating the TReDS, including the system participants, their roles, transaction process flow, settlement process, etc., besides indicating the eligibility criteria for entities desirous of setting up and operating such a system. The activities of the system will have to adhere to legal and regulatory requirements in vogue.

The TReDS will be an authorised payment system and will also be subject to the oversight of the Reserve Bank of India under the Payment and Settlement Systems (PSS) Act, 2007.

The general guidelines as well as the application format for any non-bank entity to seek authorisation under the PSS Act for operating a payment system are available at http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86707.pdf.

Entities meeting the eligibility criteria as outlined in the Guidelines and desirous of setting up the TReDS, may apply to the Chief General Manager, Department of Payment and Settlement Systems, Reserve Bank of India; applications will be accepted until February 13, 2015.

The Reserve Bank of India published a concept paper on “Micro, Small and Medium Enterprises (MSME) Factoring-Trade Receivables Exchange” in March 2014 taking into account the interest expressed by a few entities and in consultation with select stakeholders.

Based on the public comments received on the concept paper, the draft guidelines for setting up of and operating TReDS were formulated.  The feedback received from public/stakeholders, has facilitated the finalisation of these guidelines.