Context
- The Reserve Bank of India (RBI) has revised the on boarding norms for Micro, Small and Medium Enterprises (MSMEs) on the Trade Receivables Discounting System (TReDS) platform. The objective is to simplify access to invoice financing and improve liquidity for MSMEs.
Key RBI Changes
- Relaxation in Net Worth Requirement: MSMEs will now need a minimum net worth of ₹25 crore only if they use TReDS through a statutory auditor for accounting services.
- Compliance Deadline: 31 March 2028; Existing service providers have been given time until 31 March 2028 to comply with the revised net worth norms.
- Objective: To make invoice financing easier and address operational issues faced by MSMEs while converting receivables into cash.
What is TReDS?
- Definition: It is an institutional mechanism set up by the RBI to facilitate the financing/discounting of trade receivables of MSMEs from multiple financiers (including banks and non-banking financial companies).
- Working Mechanism: It operates as an online electronic platform where small businesses can auction their invoices or trade receivables to unlock stuck working capital.
- Significance: It addresses the critical issue of delayed payments and cash flow crunches faced by MSMEs when converting trade receivables into liquid cash
Why is TReDS Important?
- MSMEs often face delayed payments from large buyers.
- TReDS allows them to receive funds before the invoice due date.
- It reduces dependence on traditional bank loans.
- It improves cash flow and working capital management.
What is an MSME?
- An enterprise engaged in manufacturing, processing, or services and classified based on investment in plant & machinery/equipment and annual turnover.
Current MSME Classification (Revised Criteria)
Here is the data from the image structured into a clean, markdown table format for your notes:
| ENTERPRISE CATEGORY | PAST INVESTMENT LIMIT | REVISED INVESTMENT LIMIT | PAST TURNOVER LIMIT | REVISED TURNOVER LIMIT |
| MICRO ENTERPRISE | ₹1 crore | ₹2.5 crore | ₹5 crore | ₹10 crore |
| SMALL ENTERPRISE | ₹10 crore | ₹25 crore | ₹50 crore | ₹100 crore |
| MEDIUM ENTERPRISE | ₹50 crore | ₹125 crore | ₹250 crore | ₹500 crore |
(Latest enhanced classification announced by the Government of India in Union Budget 2025-26.)
Important Facts on MSMEs
- MSMEs contribute significantly to GDP, exports, and employment.
- They are regulated under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
- The Ministry of MSME is the nodal ministry.
- Udyam Registration is the official registration mechanism for MSMEs.
- Classification is based on both investment and turnover criteria.
Q. With reference to the Trade Receivables Discounting System (TReDS), consider the following statements:
1. It is regulated by the Reserve Bank of India.
2. It enables MSMEs to obtain finance against trade receivables.
3. Only banks can participate as financiers on the platform.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (a) 1 and 2 only
Explanation:
• Statements 1 and 2 are correct.
• Statement 3 is incorrect because, apart from banks, NBFCs and other financial institutions can also participate as financiers on TReDS.