Innovative Platform: M1xchange eases the credit flow to small business

M1xchange, an electronic platform for discounting trade receivables (invoices and bills) for MSMEs has witnessed a significant surge in transaction volumes as an increasing number of smaller businesses are taking advantage of the platform to meet their operational fund requirements.

M1xchange, which is a Trade Receivables Discounting System (TReDS) platform regulated by the RBI to buy/sell receivables of MSME business entities on a bidding model under the Payments & Settlement Act, 2007, is an easy and quick means to finance receivables at convenient rates for MSME vendors/suppliers. It ensures faster realisation of funds for MSME enterprises.

Founded in 2017 by Gurgaon-based Mynd Solutions Pvt Ltd, the online platform backed by SIDBI Venture Capital, IndiaMART, Amazon, Beenext and Mayfield, is currently discounting over R100 crore worth of invoices per day as against around R300 crore in the whole of 2018.

In fact, M1xchange is looking to hit a transaction value of over R29,000 crore in the current fiscal year alone as compared to around R30,000 crore worth of trade receivables cumulatively discounted since the inception of the platform

In the last fiscal year, it discounted invoices worth around R12,000 crore. So far, over 12,000 MSME enterprises spread across 1000+ Indian cities have used the platform. Interestingly, over 60 per cent of these MSMEs are from Tier 2, 3 & 4 cities. Currently, around 45 banks are registered on the platform to finance these MSMEs against their trade receivables.

“The last couple of years have been quite eventful for us as a TReDS platform. Our participation level has gone up significantly as small businesses are increasingly understanding the benefits of such a concept and looking to avail of the facility to meet their financial requirements. Other stakeholders are also lending their support to make it a big success,” says Sundeep Mohindru, founder & CEO, M1xchange.

Benefit for buyers
The TReDS platform enables quick financing for MSMEs against their trade receivables. This process involves three stakeholders: the MSME suppliers, corporate buyers (private corporates, central and state PSUs), and banks/financers. MSMEs which supply goods and services to corporate buyers normally get their payment in 30-90 days and such a delay often creates problems for these small businesses in terms of working capital and other capital requirements. On a TReDS platform these small businesses get funding upfront from platformregistered banks/NBFCs hassle-free (without any collateral) against their receivables at the very reasonable rate of around 4-9 per cent.

Here the buyer benefits by earning a cash discount from the vendors as they get substantial savings in interest cost on the basis of the buyer’s credit rating. Suppliers enjoy better working capital management, all the while increasing the options of expanding the business faster. Continual application of this process leads to a better receivables’ cycle too, which results in better relationship building between buyers and suppliers. Not only do MSMEs as suppliers get benefits but so do corporates/buyers as this optimises their working capital availability and regularises their cash flow. Besides, a TReDS platform is an alternative and efficient funding method for making vendor payments. Through TReDS, the buyer enables advance payment to the supplier without taking any borrowing limits on his books.

“The third stakeholder, banks/ NBFCs, also benefit as the RBI-regulated TReDS network of M1xchange offers financiers the opportunity to acquire high-quality MSME assets over a large-scale geographical area with the minimum possible time, expense, and labour. M1xchange automates the entire financing process, thereby enhancing the customer experience. In all, a TReDS is beneficial to all the stakeholders involved,” says Mohindru, whose TReDS platform which has so far been available for domestic invoice discounting, is now getting into import-export invoice discounting. The International Financial Services Centres Authority (IFSCA), the sole regulator of Gujarat’s Gift Citybased International Financial Service Centre, has issued licences to four trade-financing platforms to tap the international factoring business. Apart from M1xchange, RXIL is the other RBI-licenced TReDS given a licence; the other two, KredX and Vayana, are service providers for bill discounting and related facilities offered by banks.

RBI introduced the concept of TReDS – an institutional mechanism for financing trade receivables on a secure digital platform – in 2014. Apart from M1xchange, the RBI has granted licences to two more TReDS platforms. A. TREDS is a joint venture between Axis Bank and mjunction services (a 50:50 venture promoted by TATA Steel and SAIL) that operates Invoicemart, while RXIL is promoted by SIDBI, NSE, SBI, ICICI and Yes Bank. So far, all these three have together facilitated digital discounting of invoices worth around R88,000 crore. All three platforms currently enjoy an almost equal share in the market.