M1xchange to tap IT, cement and paper segments

Hyderabad: Covid induced lockdowns are bringing the Trade Receivable Discounting System (TReDS), an institutional setup for facilitating finance to micro, small and medium enterprises (MSMEs) against receivables, back into focus. “MSMEs provide products and services to large enterprises. They get payments after a period ranging from 45 to 90 days or even later. Covid has increased it further. Many MSMES are not in a position to bring in fresh working capital for new orders. Using TReDS to get loans is cheaper for MSMEs,” said Sundeep Mohindru, CEO, M1xchange, a RBI approved platform to facilitate receivables financing to MSMEs.

In Telangana, M1xchange has about 300 MSMEs from auto, pharma and heavy engineering sectors. It is now looking to tap more MSMEs from sectors like cement, paper, IT and Govt PSUs in Telangana, he said. “We enable early collection of payments from customers to MSMEs. In case the payments are delayed, there is no additional interest burden or penalty on the MSMEs. The risk is with the bank and the respective customer,” he said why TReDS is being favoured by the MSMEs.

Typcially, MSMEs source loans at about ten per cent. In some cases it goes to 18 per cent. Through the TReDS, MSMEs get the loans at rates ranging between 4.2 per cent and 8 per cent per annum. The interest cost has come down by 200 basis points from the pre-Corona period due to large liquidity in the system. The rate of interest offered on TReDS was lower by 5 per cent to 8 per cent, thereby bringing savings to businesses, he said. “As banks take risk calls on large corporate, they do not hesitate to extend a similar rate of interest to MSME suppliers of that corporate,” he said.

There is a saving for banks as they do not have to deploy resources for KYC, legal documentation and branch level supervision. This will result in a seven to eight per cent savings in their unit operational costs. And also, by giving a loan to the MSMEs, they are fulfilling priority sector lending mandate. The default is significantly lower as compared to lending to the MSMEs directly. Buyers are able to authorise the approval of invoices on the mobile app. Participants too can accept the best bid rate quoted by the bank through mobile app to reduce the turnaround time for transactions.

The company went live in April 2017. From 2017-2020, about 4,000 MSMEs have registered themselves on M1xchange platform. An additional 3,100 MSMEs got registered in 2020-21 alone. In all, it has members from more than 600 locations. It has 37 banks and NBFCs on board. M1xchnage processed transactions worth Rs 6,668 crore till March 2020 and then added Rs 5,700 crore in one year to take the value of transactions to Rs 12,320 crore in March 2021. The monthly volumes, which were Rs 450 crores in March 2020, have more than doubled to Rs 950 crore in March 2021, he said.

“We have written to Telangana Government asking it to motivate the PSUs to use the TReDS platform. Government entities can use the TReDS platform to demonstrate that they are good at paying their bills and thus get more bidders for their projects,” said Mohindru.

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