MSME to MSME financing: A game changer in working capital access

India’s MSME sector plays a critical role in building the nation’s economy. With over 6 crore enterprises contributing significantly to GDP, exports, and employment, the sector continues to expand across industries and geographies. However, delayed payments and restricted access to credit remain key challenges; particularly for MSMEs operating in Tier 2 and Tier 3 cities.

Traditionally, invoice discounting has been accessible primarily to MSME suppliers linked to large corporates. But the evolution of TReDS has enabled a shift. MSME to MSME (S2S) Financing, enabled by M1xchange, now allows even mid-sized MSMEs to act as buyers and extend invoice financing to their MSME suppliers.

This shift is transforming the credit landscape for small businesses.

What is MSME to MSME financing?

MSME to MSME (S2S) Financing is a deep-tier financing solution that enables early payment to MSME suppliers through invoice discounting—backed by the credit profile of buyer MSMEs. This allows financing access to businesses traditionally outside the scope of formal credit.

On M1xchange, an RBI-licensed TReDS platform, the process is entirely digital and completed in a few steps:

• The buyer (an MSME) accepts an invoice raised by a supplier (another MSME).
• The invoice is uploaded on the platform.
• MSME supplier receives early payment from the selected financier.
• MSME buyer makes repayment to the financier on the invoice due date.

The model ensures that MSME suppliers receive liquidity on time, while buyers support their supply chains without deploying their own working capital.

Key advantages of MSME to MSME financing

• Liquidity beyond the first tier town: With MSME to MSME financing, liquidity flows beyond just large corporate-linked MSME suppliers. MSMEs in Tier 2 and Tier 3 cities gain timely access to credit based on the strength of their MSME buyers.
• No collateral, Off-balance sheet benefit: Financing is done on the basis of accepted invoices, requiring no collateral or guarantees. The transaction remains off the books, preserving the balance sheet health of both MSME supplier and MSME buyer.
• Strengthened vendor ecosystems: MSMEs buyer can build more resilient supply chains by enabling faster payments to their MSME vendors. This promotes long-term partnerships and improved service delivery.
• Digital, transparent and compliant: The entire transaction is executed digitally on M1xchange’s secure, RBI-approved TReDS platform, ensuring transparency, traceability, and regulatory compliance.
• Optimized cash flow for both parties: MSME Suppliers get early liquidity to manage day-to-day operations, while MSME buyers negotiate better terms without compromising their working capital position.

Enabling inclusive credit access through TReDS

MSME to MSME Financing is expanding the scope of TReDS by enabling formal, low-cost credit access across the full depth of the MSME supply chain. It empowers mid-sized MSMEs to take on the role of buyers and anchor financing for their own MSME vendors, without the limitations of traditional lending.

This approach is particularly relevant in the context of India’s expanding digital economy, where MSMEs are growing rapidly across smaller towns and industrial clusters. By unlocking early payments and improving financial hygiene across supply chains, MSME to MSME financing is accelerating business continuity and scalability for small enterprises.

M1xchange: Driving the shift

As India’s leading RBI-licensed TReDS platform, M1xchange is at the forefront of enabling MSME financing across towns and cities. With a strong network of financiers, integrated onboarding processes, and a robust digital infrastructure, M1xchange ensures seamless execution of MSME-centric financing models.

The platform is designed to support businesses of all sizes, from large corporates to emerging MSMEs offering liquidity solutions that are fast, flexible, and credit-efficient.