New Delhi : M1xchange, India’s first and leading TReDS platform, in partnership with YES BANK and RBL Bank, announced today that it has started testing of ‘Small-Small Factoring’ product under the Reserve Bank of India’s (RBI’s) third cohort of regulatory sandbox. This product is intended to enable early liquidity to Micro, Small & Medium Enterprises (MSMEs) buyers and sellers and offers a world class customer experience to MSMEs supported by a convenient and end-to-end digital process. After successful testing under sandbox, a full scale roll out of this product is expected to offer a highly effective and efficient solution for over USD 750 Billion credit gap for MSMEs in India.
This product is one of the eight propositions that have been approved after a detailed evaluation of 22 applications by the RBI. The testing under sandbox is expected to be complete by September 2022.
One of the key features of this product is the digital credit assessment engine that enables a a360 degree view of the credit profile of the MSME buyer using a cash flow based credit model. This model analyzes authentic, non-repudiable data from multiple digital sources to generate rich insights around MSMEs credit profile and hence alleviates traditional concerns around authenticity of MSMEs business financials, a key data source in traditional balance sheet based credit assessment model.
In the prevalent TReDS model, most of the buyers are large, well rated corporates with a turnover greater than INR 500 Crore and long-term credit rating better than A-. However, financiers lack credit appetite for MSME buyers, who lack the balance sheet strength associated with a large corporate buyer. Hence, this product will leverage capabilities in technology, product development, data and risk analytics to enable cash flow-based credit analytics of MSME buyers instead of traditional balance sheet-based risk assessment approach.
Mr. Sundeep Mohindru, CEO, M1xchange said, “In the current inflationary market, where the cost of RM has gone up multifold and stocks have to be purchased in advance to manage the Supply chains disruption, MSMEs need for working capital (WC) is very high. The traditional OD / CC limits sanctioned on basis of MSME financials and the collateral they offer will fall short of WC needs. The cost of funding outside the banking system is very high for MSMEs. With this unique proposition developed by M1xchange TReDS, MSME enterprises will be able to utilise TReDS for receivables discounting from their MSME Buyers. MSME buyers in turn will be able to procure at better prices and manage their inventory adequately.”
Speaking on the occasion, Mr. Ajay Rajan, Country Head – Transaction Banking, YES BANK said, “Cashflow based Supply Chain Financing is fast evolving as the more preferred financing option for MSMEs to meet their working capital requirements. We at YES BANK are extremely glad to further our existing strategic partnership with TReDS platforms and participate with M1xchange in the RBI’s regulatory sandbox environment. This unique approach to digitally harness data and risk analytics — which could help replace traditional balance sheet-based risk assessment model with cashflow based credit analytics — can potentially be a game-changer to provide better and quicker credit access to MSMEs, while also helping the Bank augment its positioning as the preferred ‘Digital Partner’ for MSMEs.”
“We are excited to partner with M1xchange on this innovative platform benefiting the small enterprises. The liquidity needs of the Indian MSME sector have increased, implementation of this sandbox will help achieve greater efficiency and enable the MSMEs to gain access to lower interest rates and collateral free credits”, said Mr. Rajiv Janjanam, Head – Retail Products & Digital, RBL Bank.
