Rs 25 lakh crore MSME credit gap: TReDS has sparked hope for small businesses, but what's holding it back?

Time of India

15-05-2025

The
Trade Receivables Discounting System
(TReDS) platform has made notable progress in facilitating
credit
access to micro, small, and medium enterprises (MSMEs) in the country. However, industry experts and stakeholders believe that significant expansion is still required to further increase its reach and effectiveness. According to them, the
TReDS
platform must broaden its coverage, particularly after the recent reduction in the turnover threshold for mandatory buyer onboarding from Rs 500 crore to Rs 250 crore, which will include more buyers.
Vijay Mani, Partner and Banking and Capital Markets Leader, Deloitte India, acknowledges the important role of the TReDS platform in facilitating credit access to MSMEs. However, he points out that India still needs to address a substantial credit demand-supply gap.
India's
MSME
sector, comprising over 64 million enterprises, faces a substantial credit gap of Rs 20-25 lakh crore, with only about 20% having access to formal financing, according to experts.
'The TReDS platform meets less than 5% of the credit demandfrom MSMEs. While the secondary market for discounted invoices is a useful avenue for improved liquidity, the challenge in the way of credit penetration lies elsewhere, i.e., we still don't have enough coverage of corporate buyers or buying. For a meaningful increase in coverage, it may be necessary to offer incentives to the buyers and allay their concerns about data privacy,' explains Mani.
Similarly,Anil Bharadwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), highlights some issues affecting the TReDS platform, suggesting that it requires improvement. 'By design, TReDS is a buyer-dependent platform. Buyers have not warmed up to the platforms because it illuminates their payment practices. The boarding process is also found to be onerous by small MSMEs, adds Bharadwaj.
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Bharadwaj also points out that while the TReDS platform enjoys popularity among corporates, its adoption by central public sector enterprises (CPSEs) is still limited. 'Analysis indicates that only 10% of the total transaction volume on the TReDS platform is attributable to CPSEs,' says Bharadwaj.
Introduced in 2017, the TReDS ecosystem aims to address the huge credit gap in India's MSME sector by providing a digital platform designed to enable timely financing and alleviate issues related to delayed payments. M1xchange, RXIL, Invoicemart, C2treds, and KredX are the existing TReDS operators in India.
What stakeholders say
TReDS has seen significant growth since March 2018, with both the number of invoices and the amount financed consistently increasing, say stakeholders.
In FY24, the amount financed through TReDS nearly doubled compared to the previous year, surpassing Rs 1.46 lakh crore. Over half a million invoices have been financed, with small enterprises accounting for the largest share at 39.05%. Medium and micro enterprises follow closely, contributing 33.21% and 27.74%, respectively, according to the
RBI
data.
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In FY24, the amount financed through TReDS nearly doubled compared to the previous year, surpassing Rs 1.46 lakh crore.
The TReDS platform has facilitated over Rs 5.33 lakh crore in financing since its inception. In FY25, the platform saw significant growth, facilitating over Rs 2.35 lakh crore in financing, a substantial increase from Rs 1.38 lakh crore in the previous year, says Sundeep Mohindru, Promoter and Director of M1xchange, who is upbeat about the scope of TReDS going forward. 'TReDS, through its growing adoption and policy support, is well-positioned to expand its share in bridging this gap in the coming years. Over Rs 1.50 lakh MSMEs are on the TReDS platform from over 2,200 cities,' adds Mohindru.
Mohindru also shares how M1xchange has experienced growth in its customer base and transaction volume, solidifying its position in the TReDS ecosystem. The platform's significant increase in invoice discounting volumes highlights the growing adoption of TReDS and the rising demand from MSMEs for efficient working capital solutions, he says.
Notably, M1xchange recorded a total throughput of Rs 78,000 crore in FY25, nearly doubling its volume from Rs 43,000 crore in FY24, and a rise from Rs 23,100 crore in FY23.
'This consistent year-on-year growth highlights the platform's ability to cater to the evolving financing needs of MSMEs and corporates alike. Notably, the second half of FY25 alone witnessed a 150% increase in throughput, surging from Rs 32,000 crore in H1 to Rs 46,000 crore in H2. March 2025 was a milestone moment for M1xchange, achieving Rs 10,000 crore in invoice discounting within a single month—the highest ever for M1xchange,' he says.
However, Mohindru admits that despite progress, much work remains to raise awareness about TReDS benefits, such as faster and collateral-free working capital, among MSMEs in semi-urban and rural areas.
Similarly, Basant Kaur, Country Head & COO of C2FO India, says that despite significant growth of TReDS over the years, it still addresses a relatively small portion of the massive credit gap in the MSME sector, and the opportunity is enormous. With enhanced policy support and broader ecosystem participation, TReDS can transition from a niche solution to a mainstream financing channel, effectively unlocking liquidity for India's MSMEs, adds Kaur.
Both experts and stakeholders say that TReDS faces some challenges, including dependency on buyer approval, which restricts supplier-initiated discounting. Additionally, smaller MSMEs often lack awareness about TReDS or face onboarding difficulties due to limited digital literacy and documentation issues, they add. TReDS transactions lack credit insurance, making financiers cautious when dealing with lower-rated or long-tail suppliers. Furthermore, buyer-side inertia, especially among large corporations and PSUs, results in underutilisation despite mandatory registration requirements, say experts and stakeholders.
'Banks are adopting the TReDS model for financing the business of one small MSME to another small MSME. From a financier's perspective, higher perceived credit risks associated with discounting MSME invoices, particularly when buyers are unrated or operate in informal sectors, act as a deterrent,' says Mohindru.
Mohindru also shares how M1xchange has implemented alternative credit assessment models, leveraging digital transaction data from MSME sellers on the TReDS platform, to help banks better underwrite risk associated with invoices. 'This not only enhances credit visibility but also improves investor confidence by creating a more transparent and data-driven financing environment,' adds Mohindru.
Innovation and policy support needed
As the TReDS ecosystem experiences robust growth, the next phase should prioritise innovations and supportive policies to enhance financial inclusion and bring more MSMEs into formal financing channels, say experts and stakeholders.
Integrating the GSTN portal with TReDS , where invoices uploaded to GSTN are automatically routed to TReDS, could significantly streamline the payment process and ensure timeliness, they add.
'The government should actively encourage larger corporates to adopt TReDS, as their participation is crucial for driving growth and expanding the platform's reach. A few states, such as Goa, have mandated all their PSUs and departments to onboard TReDS. The RBI has already made a host of suggestions to expand the scope of services that could be delivered through TReDS. Last but not least, there is a need to incentivise companies with a turnover above Rs 250 crore to make transactions through TReDS,' adds Bharadwaj.
Kaur suggests enabling credit insurance and allowing secondary market trading of discounted invoices on TReDS, as previously proposed by the RBI. 'Mandate transaction thresholds (not just onboarding) for buyers, especially those with turnovers above Rs 250 crore. Additionally, TReDS participation should be linked to ESG scoring and credit ratings for buyers to create non-fiscal incentives for early payments. With these measures, TReDS can help drive inclusive, scalable, and transparent financing for India's MSMEs,' says Kaur.
Mohindru advocates for activating credit guarantee funds for factoring, which could further support the growth of TReDS and enhance financing options for MSMEs. 'This fund has been sanctioned earlier and is yet to go live on TReDS. This fund works like the CGTSME scheme and will have a lock to service SMEs who supply goods and services to unrated/small buyers. Also, allowing TReDS second window i.e., allowing SMEs to discount invoices without buyer involvement, will help to cater to SMEs whose buyers do not live on the platform,' adds Mohindru.