The Reserve Bank of India has updated its TReDS platform guidelines to improve working capital access for MSMEs. The new rules allow financiers to use credit guarantee funds and insurance, while enabling secondary market trading of receivables. These steps aim to reduce credit risk and encourage more banks and NBFCs to participate in the marketplace.
What Happened
The Reserve Bank of India (RBI) has issued fresh directives for the Trade Receivables Discounting System (TReDS) platforms to improve credit access for Micro, Small, and Medium Enterprises (MSMEs). The updated framework, effective immediately, introduces several measures designed to lower risks for lenders and improve the flow of funds to smaller businesses. By allowing the use of credit guarantees and creating a mechanism for secondary trading of receivables, the central bank aims to make the platform more attractive for banks and non-banking financial companies (NBFCs).
New Tools To Manage Risk
A key change in the new rules is the formal recognition of government-established credit guarantee funds on TReDS platforms. Financiers can now secure guarantee covers for the receivables they purchase, which directly mitigates the risk of default. This is intended to encourage lenders who previously stayed away from MSME receivables due to concerns over credit quality. Additionally, the RBI now permits financiers to obtain insurance for their TReDS exposures, although this insurance cannot be counted as a regulatory credit risk mitigant for prudential norms. By providing these safety nets, the RBI expects more lenders to participate in the ecosystem.
Strengthening The Secondary Market
In a structural shift, the regulator has opened the door for the secondary market in receivables financing. Financiers are now allowed to perform further discounting and re-discounting of receivables, meaning they can transfer factoring units to other eligible financiers. This move is designed to boost liquidity for lenders, allowing them to manage their portfolios more dynamically. The regulations also clarify that once a buyer accepts a factoring unit on the platform, the payment obligation becomes unconditional, preventing disputes over goods or service quality from delaying payments to MSMEs.
Compliance And Capital Rules
To ensure the stability of the platform operators, the RBI has mandated a minimum net-worth requirement of ₹25 crore. Existing platform operators have until March 31, 2028, to meet these revised capital standards. The regulator has also streamlined the onboarding process for MSMEs and enforced mandatory registration of receivable assignments with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). These steps are part of a broader effort to increase transparency, automate validation for MSME status, and ensure that funds are transferred directly to the sellers.
What To Watch Next
Investors and market participants should monitor how these changes affect lender participation on the three major TReDS platforms—M1xchange, RXIL, and Invoicemart. Increased volumes on these platforms could indicate a healthier working capital cycle for the MSME sector. Furthermore, the compliance progress of these platforms regarding the ₹25 crore net-worth requirement by 2028 will be a key operational milestone. For financial institutions active in this space, the utilization of new guarantee and insurance tools will be an important factor to track in coming quarters.