Policy Update
Divya Natrajan
Background
The Trade Receivables Discounting System (TReDS) is an RBI-regulated electronic platform that allows Micro, Small and Medium Enterprises (MSMEs) to convert unpaid invoices owed by large corporate and government buyers into immediate working capital by auctioning those invoices to competing financiers at a discount. This idea originated in a concept paper on an “Electronic Trade Receivables Exchange” that the RBI put out for public comment in March 2014 (Reserve Bank of India, 2014); the final Guidelines for the Trade Receivables Discounting System were issued in December 2014 under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007.
The problem TReDS was built to solve is a long-standing one in Indian commerce: large buyers routinely delay payments to their MSME suppliers well beyond agreed credit terms, and MSMEs, lacking the collateral or negotiating power to demand faster payment, have historically had to either absorb the resulting cash-flow strain or turn to informal, high-cost credit to stay liquid. The Micro, Small and Medium Enterprises Development Act, 2006, already required buyers to pay MSME suppliers within 45 days, but that legal mandate had limited practical force without a mechanism that made non-compliance visible and gave MSMEs an alternative source of immediate cash regardless of when the buyer actually paid.
It is worth noting that a considerable gap separated the policy and its implementation. The Guidelines were issued in December 2014, but building a new piece of market infrastructure took time: applicants had to meet capital and governance norms (₹25 crore minimum paid-up equity, no non-promoter above 10 percent shareholding), build the underlying technology, and clear RBI’s regulatory review. No platform actually went live until December 1, 2016, when Receivables Exchange of India Limited (RXIL), a joint venture of SIDBI, NSE, State Bank of India, ICICI Bank, and Yes Bank, cleared this process and launched India’s first operational TReDS platform. M1xchange and Invoicemart followed in 2017. In effect, MSMEs waited close to three years between the policy being announced and having an actual platform to use, a delay this article returns to when assessing the scheme’s overall trajectory.
Since then, the framework has been revised repeatedly. In November 2018, the government made TReDS registration mandatory for all companies with turnover above ₹500 crore and all Central Public Sector Enterprises (CPSEs). In June 2023, the RBI expanded the scope of TReDS to permit secondary-market transfers of invoices, introduce an insurance facility, and broaden financier eligibility to any entity permitted to factor under the Factoring Regulation Act, 2011, not just banks and NBFC-Factors.
In November 2024, the mandatory registration threshold was lowered from ₹500 crore to ₹250 crore turnover, with a compliance deadline in mid-2025. Most recently, the RBI consolidated all prior instructions into a single Master Direction on TReDS in June 2026, which also introduced a minimum net-worth requirement of ₹25 crore for platform operators.
Functioning
Four types of participants operate on a TReDS platform: the MSME seller, the corporate, government, or PSU buyer, one or more financiers (banks, NBFC-Factors, and, since 2023, other Factoring Regulation Act-eligible entities), and the TReDS platform operator itself, which is authorised and regulated by the RBI. Five platforms currently hold this authorisation: RXIL, M1xchange, Invoicemart, C2treds, and DTX (operated by KredX).
The transaction flow is designed to be straightforward for the MSME seller, even though multiple parties are involved behind the scenes.
Table 1: TReDS Transaction Flow
| Step | What happens |
| 1. Invoice upload | The MSME seller uploads an invoice (termed a Factoring Unit) onto the platform after delivering goods or services to the buyer. |
| 2. Buyer acceptance | The buyer confirms and accepts the invoice on the platform, verifying the underlying transaction. |
| 3. Financier bidding | Registered financiers bid competitively (a reverse auction) to discount the accepted invoice, offering the seller an amount below its face value in exchange for the right to collect the full amount later. |
| 4. Discounting and payout | The seller accepts the best bid and receives the discounted amount, typically within one to two working days (T+1/T+2). |
| 5. Settlement | On the invoice’s due date, the buyer pays the full invoice amount to the financier, closing the transaction. |
Source: Reserve Bank of India, Guidelines for the Trade Receivables Discounting System, 2014; Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026 (compiled by author).
A few design features are worth noting because they shape how TReDS actually functions in practice. Financing on TReDS is without recourse to the seller, meaning that once the invoice is discounted, the MSME has no further liability if the buyer eventually defaults, a meaningful protection that shifts credit risk onto the financier and the buyer rather than the smaller, less capitalised party.
Factoring Units created on TReDS also carry the same legal sanctity and enforceability as the underlying physical instrument would have had, under the Factoring Regulation Act, 2011 for invoices, or under the Negotiable Instruments Act, 1881 for bills of exchange, giving the digital record legal standing rather than functioning as a mere data entry (Reserve Bank of India, 2014b). Since 2023, factoring units that go undiscounted can still be settled on the platform itself rather than requiring settlement outside the system, and platforms can facilitate secondary transfers of already-discounted invoices between financiers.
Performance
TReDS’s performance needs to be read against the scale of the problem it was designed to address, and here a recent independent academic assessment offers a useful, if sobering, benchmark. A 2026 SSRN working paper combining Reserve Bank of India administrative data, platform-level impact assessments, TransUnion CIBIL’s MSME Pulse reports, and Ministry of MSME statistics found that as of March 2024, approximately ₹7.34 lakh crore in MSME trade receivables remained stuck in overdue payments nationally, despite TReDS having been operational for close to a decade by that point (Grewal, 2026).
Against that backdrop, TReDS’s own registration and transaction numbers, while growing, remain modest. The same study found that as of March 31, 2025, 135,093 MSME sellers and 7,937 corporate buyers had registered across the three original operational platforms, RXIL, M1xchange, and Invoicemart (Grewal, 2026). RBI data cited by Bloomberg shows that ₹1.4 lakh crore worth of invoices were financed through these three platforms in FY2023-24, a sharp increase from just ₹800 crore financed in FY2017-18, TReDS’s first full year of operation (Bloomberg, 2024). Individually, RXIL alone reported crossing ₹1 lakh crore in cumulative invoice financing by 2024 and had targeted ₹75,000 crore in financing for FY2024-25 on its own.
It is worth flagging that these figures do not fully agree with one another across sources. When compared on a like-for-like basis, the numbers broadly hold up: RBI data cited by Bloomberg puts total financing across the three original platforms at ₹1.4 lakh crore for FY2023-24, corroborated independently by legal-industry reporting citing ₹1.38 lakh crore for the same year, an 80 percent year-on-year increase. But more recent, platform-wide figures are harder to verify. RXIL alone reported ₹80,457 crore in throughput for FY2024-25, yet no consolidated,
RBI-published figure covering all five currently authorised platforms for that same year appears to be publicly available, making it difficult to assess how representative RXIL’s individual growth is of system-wide performance. This is a smaller-scale version of a reporting-transparency problem this series has flagged in other digital public infrastructure schemes: growth is real, but the exact magnitude of that growth is harder to pin down than official and industry communications sometimes suggest.
On outcomes for the MSMEs that do use the platform, the evidence is more consistent and more encouraging. The SSRN study found that adopting MSMEs experienced a 23 percent reduction in their receivable realisation cycle and an 8 percent increase in sales within six to twelve months of adoption, based on platform-level data, while non-adopting MSMEs continued to face average payment delays of 90 to 120 days (Grewal, 2026).
Sector-wide, the gross NPA ratio for MSME lending fell from approximately 11 percent in FY2020 to 3.59 percent by March 2025, with the share of subprime borrowers falling from 33.5 percent to 23.3 percent over the same period (Grewal, 2026, citing TransUnion CIBIL). This decline reflects broader improvements in MSME credit quality across multiple channels, not TReDS adoption alone, and should not be read as a causal effect of the platform by itself.
The study’s central and most consequential finding, however, is one of scale rather than direction: despite these real, measurable benefits for adopters, only approximately 0.2 percent of India’s 66.3 million MSMEs currently use TReDS (Grewal, 2026). Whatever TReDS is achieving, it is achieving for a very small fraction of the population it was designed to serve.
Impact
For the MSMEs that have adopted it, TReDS’s impact is concrete and well documented. Faster receivable realisation directly eases the working capital pressure that has historically constrained MSME growth, and the shift from collateral-dependent bank credit to invoice-backed, without-recourse financing genuinely broadens the pool of MSMEs that can access formal credit on reasonable terms. Case-level reporting bears this out: one Indian engineering firm reported its cost of funds dropping by 2.5 percentage points after adopting TReDS, alongside revenue roughly doubling over two years, changes the firm’s own management attributed substantially to the platform.
The 2024 lowering of the mandatory buyer registration threshold, from ₹500 crore to ₹250 crore turnover, offers a useful data point on what drives buyer participation. Following the November 2024 notification, M1xchange reported monthly corporate onboarding requests rising from around 30 to over 60 per month (KNN India, 2024), consistent with buyers responding more to legal and tax consequences, including disallowance of the expense under the Income Tax Act for MSME dues outstanding beyond 45 days, than to the platform’s own value proposition. This aligns with a broader pattern worth naming plainly: buyers had comparatively little independent incentive to join a system that accelerates payment to their own suppliers, and it was the legal and tax consequences attached to non-compliance with MSME payment timelines, including disallowance of the expense under the Income Tax Act for dues outstanding beyond 45 days, that appears to have done more to drive genuine buyer participation than the platform’s own value proposition to buyers.
At the same time, given that TReDS reaches only around 0.2 percent of India’s MSMEs against an estimated MSME credit gap in the tens of lakhs of crores, its impact at the level of India’s MSME financing problem overall remains marginal rather than transformative. TReDS has built a genuinely functional, well-regulated piece of financial infrastructure. It has not yet come close to closing the gap it was created to address.
Emerging Issues
First, penetration remains extremely low relative to the underlying problem. With roughly 135,000 registered MSME sellers against a base of 66.3 million MSMEs nationally, and ₹7.34 lakh crore in overdue receivables still outstanding as of the most recent available data, TReDS’s reach is a rounding error relative to the scale of the payment-delay problem in India (Grewal, 2026). Growth in absolute registration and transaction numbers should not be mistaken for meaningful progress on the underlying national problem until penetration itself moves by orders of magnitude, not incremental percentages.
Second, buyer registration does not guarantee active participation. Legal analysis of the compliance landscape has noted that some large buyers register on a TReDS platform to satisfy the regulatory mandate but then process comparatively few invoices through it, meeting the letter of the requirement without meaningfully changing how they pay their MSME suppliers. Because enforcement currently relies on registration status rather than verified transaction activity, this gap between nominal compliance and genuine usage is difficult to detect or penalise under the current framework.
Third, credit and onboarding barriers have likely excluded some of the MSMEs that need TReDS most. Industry practitioners have reported that smaller MSMEs face onboarding difficulties tied to limited digital literacy and documentation requirements, while financiers have historically been cautious about discounting invoices from lower-rated or long-tail suppliers in the absence of credit insurance (M1xchange, 2025).
The RBI’s own 2026 Master Direction lends this some regulatory weight: it explicitly identifies the absence of credit guarantee cover for financiers as a structural gap limiting their risk appetite toward smaller and newer MSME borrowers, and addresses it by allowing financiers to obtain CGTMSE guarantee cover on factoring units (Candour Legal, 2026). This suggests the exclusion of smaller, less-established MSMEs was a recognised design gap rather than a hypothetical concern, though whether the 2026 fix meaningfully closes it remains to be seen in adoption data.
Fourth, public performance data is fragmented and inconsistently reported. As the Performance section noted, credible sources, including RBI-cited figures, individual platform disclosures, and industry commentary, do not consistently agree on basic figures such as total annual financing volume. Without a single, standardised, regularly published dataset covering all five authorised TReDS platforms, independent assessment of the scheme’s actual trajectory depends on reconciling figures from disparate, sometimes contradictory sources.
Finally, frequent regulatory revision suggests the framework is still finding its footing. TReDS has been substantively revised at least four times since 2014, the 2018 mandatory registration rule, the 2023 scope expansion, the 2024 threshold reduction, and the 2026 consolidated Master Direction. Each revision is individually justifiable, but the cumulative pattern, a decade of continuous structural adjustment, suggests that the scheme’s design has required repeated correction to work as intended, and that the 2026 Master Direction should not be assumed to be TReDS’s final form either.
Way Forward
First, penetration among smaller and lower-rated MSMEs should be deepened. The RBI and platform operators should explore relaxed or alternative credit assessment pathways for smaller invoices, potentially using pooled or portfolio-level risk assessment rather than requiring each MSME seller to independently clear conventional creditworthiness thresholds, since the current onboarding bar likely screens out many of the MSMEs TReDS was intended to help most.
Second, enforcement should shift from registration status to verified transaction activity. Given documented cases of buyers registering on TReDS without meaningfully using it, the Ministry of MSME should require and publicly disclose actual invoice processing volumes per registered buyer, not just registration status, and consider graduated penalties for buyers who register but process negligible volumes relative to their scale of procurement from MSME vendors.
Third, a single, consolidated, RBI-verified performance dataset should be published. The RBI should publish a standard quarterly dataset covering registration, transaction volume, and financing value across all five authorised TReDS platforms in one place, so that independent researchers, journalists, and policymakers are not left reconciling inconsistent figures from platform-specific disclosures and third-party commentary.
Fourth, the 2024 threshold reduction should be paired with targeted awareness campaigns. Given how effectively the 2024 mandatory-registration threshold change appears to have driven buyer onboarding, a similar concentrated push, focused on generating MSME seller awareness in Tier 2 and Tier 3 cities and integrated with the existing Udyam Registration portal, could meaningfully expand seller-side participation, which has grown far more slowly than buyer-side registration.
Finally, the 2026 Master Direction should be treated as a checkpoint, not an endpoint. Given the frequency of revision to date, the RBI should commit to a standing periodic review of TReDS performance against clearly defined penetration and usage targets, rather than treating the 2026 consolidation as having resolved the scheme’s structural challenges.
References
Reserve Bank of India. (2014, December). Guidelines for the Trade Receivables Discounting System (TReDS). https://rbidocs.rbi.org.in/rdocs/Content/PDFs/TREDSG031214.pdf
Reserve Bank of India. (2023, June 7). Notification expanding the scope of the Trade Receivables Discounting System. Reserve Bank of India.https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12510&Mode=0
Reserve Bank of India. (2026, June 23). Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026.https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx
Ministry of Micro, Small and Medium Enterprises, Government of India. (2024, November 7). Notification S.O. 4845(E): Mandatory TReDS registration for companies with turnover above ₹250 crore and CPSEs. https://www.juriscorp.in/msmes-with-lower-turnovers-now-eligible-for-treds-registration/
Grewal, M. S. (2026, April 30). Trade Receivables Discounting System (TREDs) and MSME Financial Health in India: A Comparative Study of Platform Adopters and Non-adopters. SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6735318
Business Standard / Bloomberg. (2024, October 22). RBI’s ‘TReDS’ platform bridging $600 bn funding gap for smaller firms. https://www.business-standard.com/finance/news/rbi-s-treds-platform-bridging-600-bn-funding-gap-for-smaller-firms-124102201091_1.html
Chambers and Partners. Regulatory Framework of the Trade Receivables Discounting System (TReDS) Platform. https://chambers.com/articles/regulatory-framework-of-the-trade-receivables-discounting-system-treds-platform
Chambers and Partners. Unlocking MSME Liquidity: The TReDS Framework and the Compliance Gap. https://chambers.com/articles/unlocking-msme-liquidity-the-treds-framework-and-the-compliance-gap
Candour Legal. (2026, July 3). RBI’s TReDS Master Direction 2026: What the Final Framework Means for MSME Sellers, Financiers, and Platform Operators. https://candourlegal.com/rbi-treds-master-direction-2026-msme-credit-guarantee/
Indian Institute of Company Secretaries of India (ICSI). Trade Receivable Discounting System (TReDS). https://www.icsi.edu/media/webmodules/Trade_Receivable_DiscountingSystem_TReDS.pdf
KNN India. (2024, November). Mandatory TReDS Registration For Firms Exceeding Rs 250 Cr Turnover Accelerating Sign-ups. https://knnindia.co.in/news/newsdetails/msme/mandatory-treds-registration-for-firms-exceeding-rs-250-cr-turnover-accelerating-sign-ups
M1xchange. Rs 25 lakh crore MSME credit gap: TReDS has sparked hope for small businesses, but what’s holding it back? https://www.m1xchange.com/rs-25-lakh-crore-msme-credit-gap-treds-has-sparked-hope-for-small-businesses-but-whats-holding-it-back/
About the Contributor
Divya Natarajan is a Research and Editorial Intern at IMPRI and a recent Economics graduate from Stella Maris College, Chennai. She has experience in public policy research, editorial writing, and policy analysis through internships with think tanks and research organisations. Her interests include public policy, governance and development economics.
Acknowledgements
I would like to extend my gratitude to IMPRI for this opportunity, constructive reviews and editorial support.
Reviewers: Anamika P K and Gowri Kodali
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organisation.
Read More at IMPRI
Beyond Enrollment for Girls: Kanyashree Prakalpa Scheme (2013), West Bengal
SARTHAK-PDS (2026): Strengthening Technology-Enabled Foodgrain Distribution
