Financial Empowerment of Micro, Small, and Medium Enterprises through Trade Receivables Discounting System: A Conceptual Analysis
A vibrant Micro, Small, and Medium Enterprises (MSME) sector is fundamental for ongoing development in both advanced and emerging economies. MSMEs are significant employment providers, particularly in OECD countries, employing around two-thirds of the formal workforce. In India, MSMEs play an important role in the economy by fostering entrepreneurial culture, innovation, and job creation. They are well-distributed across various economic sectors, catering to domestic and international markets. As of November 2021, India had approximately 63.38 million MSMEs, with significant portions in manufacturing and trading, contributing about 29% to India's GDP. Despite their economic importance, MSMEs face significant challenges in securing financing, particularly working capital. Compared to larger businesses, MSMEs have higher capital intensity per unit of revenue due to limited internal cash reserves, making timely access to affordable finance essential. Liquidity issues, primarily due to delayed payments from corporate buyers, exacerbate these challenges. The Reserve Bank of India introduced the Trade Receivables Discounting System (TReDS) in 2014 to address these issues by facilitating the financing of MSME trade receivables from corporate buyers through multiple financiers.
This study examines the condition of MSMEs in India, their economic significance, and their financing challenges, with a particular focus on the TReDS e-discounting platform. The study updates the literature by detailing the TReDS process, presenting recent data on its growth, and identifying current challenges.
© 2024 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Singh, G. (2024). Financial empowerment of micro, small, and medium enterprises through trade receivables discounting system: A conceptual analysis. Journal of Applied Economic Sciences, Volume XIX, Fall, Issue 3(85), 257 - 265. https://doi.org/10.57017/jaes.v19.3(85).02
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