NSE to launch platform for financing SMEs against bills

National Stock Exchange
The National Stock Exchange (NSE) is planning to launch a new trading platform for bill discounting or trade receivables of micro, small and medium enterprises (MSME). The country’s largest exchange has forged a joint venture with the Small Industries Development Bank of India (Sidbi) for the new platform, which is likely to go live by the end of this calendar year, according to people in the know.

The new electronic trading platform is aimed at easing the liquidity constraints of MSMEs. Bill discounting is a concept where a firm sells its accounts receivables to a bank or a factoring firm. Selling bills or accounts receivables helps the firm generate cash, which would otherwise have got realised at a future date.

The Reserve Bank of India (RBI) had issued the final guidelines for setting up a Trade Receivables Discounting System in December 2014.

NSE and Sidbi are planning to call the new platform ‘trades exchange’, said a source.

“This will be a new pioneering venture. We have already got the approval from the banking regulator on this and we'll be signing the formal agreement very soon,” said a senior official at Sidbi.

NSE declined to comment on the matter.

To participate on the platform, an MSME will have to sign agreements with the exchange that will provide the facility for electronically presenting and accepting bills. Besides providing the technical infrastructure, the exchange will also look into aspects such as registration and due diligence of MSMEs and respective corporate, on-boarding of financiers, technical requirements and business processes for de-materialisation of invoices, documentation requirements and legal formalities, etc.

Internationally, such platform has been in practice for quite some time. For instance, the Mexican development bank has created an electronic system where any small firm could present receivables on a number of large firms to it. The accepted receivables, now full-fledged claims on the large firms, were then auctioned off in the market, and the proceeds paid out to the small firms.

On various occasions in the past, the banking regulator had raised concerns over the issue of delayed payments of MSMEs, because of their dependency on the corporate buyer and the inability to take up the issue through appropriate institutional setup created for the purpose.

While the platform ensures sufficient liquidity for all stakeholders, it has also some risk factors that need to be addressed. These include proper legal framework for supporting the model, discounting needs to be identified, provisions of registration requirements, default handing , settlement of funds, etc.

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EASING FUND-RAISING
  • NSE to launch Bill discounting trading platform soon

     
  • New platform to be called Trades Exchange

     
  • This will be the first specialised exchange for MSME, operational by December

     
  • SIDBI will be the promoter of the new exchange

     
  • RBI has already given the approval for Trade Receivables Discounting System

     
  • The new exchange will ease financing of MSME bills/invoices through reverse factoring

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