M1xchange expects MSME trade receivables financing on its platform to double in FY23

M1xchange expects micro, small and medium-sized enterprises (MSME) trade receivables financing in its digital marketplace to more than double to Rs 25,000 crore-Rs 30,000 crore in FY23.

According to Sundeep Mohindru, CEO of M1xchange, industry and banks have become familiar with the adoption of the digital market (TReDS (Trade Receivables Discounting System) platform), which was introduced by the Reserve Bank of India in 2017 to facilitate the financial inclusion of MSMEs.

“In April 2017, when we launched the TReDs platform, the total rebate value for MSMEs in that financial year (FY18) was Rs 300 crore and Rs 12,000 crore for FY22. In FY23, we will make Rs 25,000-30,000 crore,” he said.

Mohindru observed that before, the challenge was that banks used to find MSME trade receivables financing risky.

“Now, without meeting a customer face to face, a banker sitting in his office discounts the invoice and payment is released to the customer’s account through the exchange,” he said.

Mohindru said MSME trade receivables amounting to Rs 100 crore per day are funded/discounted on M1xchange, up from Rs 300 crore in the first year of its operations.

“So that’s how adoption happens… The bank takes a risk on the SME by giving it financing (on the TReDS platform). But in fact, he takes a risk on the company, which is his client with an “AA”, “A” or “BBB” rating.

“…Thus, the SME obtains financing at the same interest rate as a large company. Thus, the average interest rate for an SME varies from 5% to 9% per year, which these companies would never have obtained otherwise,” explained the head of M1xchange.

Since the SME’s operating costs have fallen, it passes the benefits on to its customers.

“This way, SMEs receive their payment on time and can better serve the supply chain. It is therefore a win-win for the company, the SME and the bank. There is no default for banks on TReDS,” Mohindru emphasized.

Published on

September 07, 2022

Michael J. Birnbaum