M1xchange and Trade Receivables Discounting System

M1xchange and Trade Receivables Discounting System

#GS-3 #Economy #Infrastructure #Inclusive Growth #Mobilization of Resources

Why in News

  • The M1xchange is an important digital marketplace approved by the Reserve Bank of India (RBI).
  • It works under the Trade Receivables Discounting System (TReDS) framework.
  • Its main goal is to solve the continuous working capital problems of Indian MSMEs through transparent invoice discounting.

Key Features and Mechanism

  • The system was authorized by the RBI in 2015 under the Payment and Settlement System (PSS) Act, 2007.
  • TReDS is an electronic platform regulated by the RBI that helps MSMEs get fast working capital by discounting bills raised on big companies and government buyers.
  • M1xchange acts as a single digital platform that brings together three groups: MSMEs (Suppliers), Large Corporates/PSUs/Govt. Departments (Buyers), and Banks/NBFCs (Financiers).
  • It offers collateral-free and non-recourse financing, which saves MSMEs from the risk of buyer default.
  • The financier takes the risk of non-payment, which ensures off-balance-sheet funding for MSMEs.
  • The platform uses an open bidding model where nationalized, private, and foreign banks compete to give MSMEs the lowest interest rates.
  • The Department of MSME has made TReDS registration compulsory for all companies with a turnover of more than INR 250 crores and all Central Public Sector Enterprises (CPSEs).
  • The Registrar of Companies closely monitors this mandatory compliance.
  • MSMEs get fast money release, often within 24 hours, along with early payments and off-balance-sheet funding.
  • Big companies enjoy lower buying costs because they can negotiate better with vendors.
  • Financiers can easily build their Priority Sector Lending (PSL) asset portfolio through this system.
  • The platform provides a complete paperless and fully secure digital onboarding process to check the truth of all invoices.

Global Expansion through GIFT City

  • M1xchange has started M1NXT ITFS in GIFT City located in Gujarat.
  • This is India's first International Trade Financing Services (ITFS) platform.
  • It helps Indian MSMEs connect with global factoring and international trade finance services.
  • The platform allows foreign banks and global financiers to give working capital loans to Indian MSMEs at good rates.
  • This brings much-needed global money into the Indian MSME sector.