Trade

Receivables

Discounting

System

MSMEs : Growth Engine for the Indian Economy

Source: MSME at a Glance Report 2016; KPMG Report

7.04%

30.50%

37.54%

Manufacturing Services % of GDP

Indian MSMEs share constitutes 37.5% of the total GDP

Source: MSME Annual Report 2015-16

MSMEs: Pillar of the Economy growing at CAGR of 11.5%

70 Mnemployment generation

45% of manufacturing

output

40% of overall exports

Growth of MSMEs

Legal & Regulatory Framework

Government Support

Finance Infrastructure

• MSMED Act 2006 and PSL status have been significant policy interventions

• MSMEs in India have received fillip through Government initiatives like Make in India, Skill India and Digital India

• Credit Rating Agencies, factoring companies & platforms like TReDS are intended to improve credit flow in MSMEs

Enabling environment being created for MSME growth

MSME sector wise % of GDP, 2012-13

• “Make in India” initiative - increase the share ofmanufacturing in the GDP

• Skill India Initiative

• Public procurement policy - Procure a minimum of 20per cent (by value) from MSEs

• Micro and small enterprises (MSE) cluster developmentprogramme (MSE-CDP)

• Prime Minister’s Employment Generation Programme(PMEGP)

• PMKVY (Pradhan Mantri Kaushal Vikas Yojana)

• National Manufacturing Competitiveness Programme

Government Initiatives

• Plays a pivotal role in the economy.

• Provides employment opportunities outsideagriculture sector, primarily Services sector

• Carters to local & foreign markets

• Important partner in the value chain of Largeenterprises & MNCs / Global companies

• Acts as a Raw material supplier / Contractmanufacturer/SCM Partner / service provider

• Evolves into strategic partner providinginnovative / niche manufacturing / advanced &low-cost technology & superior services.

• MSMEs capitalise on the trade opportunitiesowing to India’s close proximity to keyautomotive markets like the ASEAN, Japan,Korea and Europe etc

Strategic Importance of MSMEs

MSMEsIndian

Economy

MSMEs : Growth Engine for the Indian Economy

Dearth of easy financing continues to plague MSMEs

Challenges faced by MSMEs

The Trade Receivables Discounting platform aims to bridge thefinancing gap between MSMEs and formal credit institutions

22%

78%

Formal Informal

Sources of Finance (%)

Low formal sector coverage leads to high debt cost

Source: IFC Report 2013

Source: FirstBiz-Greyhound Knowledge Group SME Survey, 2014 (n=540)

70%

72%

74%

76%

78%

79%

Labour Laws & availability ofaffordable skilled labour

Absense of Marketingplatforms and Distribution…

Lack of Infrastructure Facilities

Unavailability of ModernTechnology

Limiting Regulatory Policies

Dearth of Easy Finance &Credit Instruments

• High cost of funds owing to higher default risk

• Lack of adequate collateral

• No credit history due to a weak financial profile

• Complex documentation processes of banks

• Inefficient working capital management

% of respondents

Need for TREDS

10% coverage by

formal institutions

Only about 10% of the factoring market in India covered under formal bill discounting system in

2014. In the current scenario, lack of adequate finance, especially working capital finance has

become the biggest challenge for MSMEs, affecting their liquidity and business

High risk perception and limited access of MSMEs to adequate collateral are major reasons why

formal financial institutions have limited their exposure to this sector

High stamp duty and limited regulatory framework have also been acting as impediments against

the growth of MSMEs

To address the above challenges, the Reserve Bank of India envisaged the idea of an e-

discounting system on the lines of the successfully executed Mexican NAFIN Cardenas model

Citing the need for and use of Trade Receivables Discounting System (TREDS) for improving flow of funds to MSME sector, the

RBI granted approval to Axis Bank under the Payment and Settlement System (PSS) Act 2007 for setting up a (TREDS)

platform.

The platform is known as Invoice mart.

** A.Treds Limited (subsidiary of Axis Bank) was incorporated in 2016 and is headquartered in Mumbai, India

Genesis of A.TREDS LTD

A 50:50 joint venture of twoIndian steel conglomerate – theSteel Authority of India Ltd(SAIL) and Tata Steel operatingthe world’s largest e-Marketplace for steel and steelproducts

The Third LargestPrivate sector bank inIndia

The Market Participants

A.TREDS will be operating the online receivables discounting platform for facilitating the short term financial transactions in a

smooth and efficient manner among the following market participants:

SME 1

SME 2

C2C1

F1

F2

F3 SME 3

Buyers (Large Corporates)

MSME Sellers Financiers (Banks/ NBFC Factors)

1

Seller sends goods to buyer

2Seller raises invoice on platform

3

Buyer receives goods and does quality and quantity check

4Buyer logs on platform and is able to view invoice

5

Buyer verifies invoice, accepts for payment and provides due date

6Invoice moves to queue of financiers

7

Financiers able to view all invoices accepted by various buyers on the platform

How it Works?

Bidding window closes for financiers

9

Quotes are visible to seller for his acceptance

108Financiers quote their rate of interest

11

Seller accepts quote with lowest rate of interest

12Financier winning the bid is intimated

13

Funds are transferred from financier’s a/c to seller’s a/c

14On Due date funds are debited from buyer’s a/c and credited to financier’s a/c

How it Works? (Contd…)

Why Migrate to TReDS?

• Better terms of contract in

terms of flexible usance

period upto 180 days

• Tool for lowering

procurement costs

• Efficient working capital

management & future cash

flow management

• Access to MIS and analytics

based on data of past

transactions

TReDS Platform

What’s in it for the

Corporate Buyers?

• Reduced acquisition and

servicing cost to MSMEs

• Better risk management

due to shift of risk to large

blue chip buyer

• Priority Sector Lending

benefits & exposure

What’s in it for

Banks and FIs?

• Improved working capital

management due to quicker

turnaround of receivables

• Better price discovery

• Reduced cost of funds &

mitigation of uncertainty

of payment

• Non collateralized and non-

recourse financing

What’s in it for the

MSME Sellers?

Strategic Advantage : A.TREDS Ltd

Business Know How• Promoter – one of

the market leaders inbanking with strongunderstanding ofbusiness

• Extensive dealingwith financiersthrough Syndication& correspondingbankingarrangement

Access to Large Corporates

• Significant history ofdealing with largecorporates across arrayof services such ascredit, Transaction Bkg.

• Perfectly positioned totap existing customerbase

Expertise in Dealing with MSMEs

• Promoter has strongMSME franchise forover a decade

• Dedicated facilitiesto cater to MSMEbusiness

Technology Know How

• In-depth knowledgeand experience inB2B platforms

• Promoter runsIndia’s largest B2Becommerce platformand world’s largesteMarketplace forsteel

Right synergy : Deep understanding of Trade Finance & E –Commerce (Auction) Business

E-Marketplace Lending: Digital Financing solutions for MSMEs

Top Funded Sector: SME

lending

Growth of online consumer lending in India

Capital FloatFunding: 16 Million USD

LendingKartFunding: 9.5 Million USD

NeoGrowthFunding: 4.6 Million USD

• The new trends in SME financing are getting influenced bydigital revolution includes analytics based lending, peer topeer lending and many other variants

• New age NBFCs like Capital Float, LendingKart, NeoGrowthand Credex through their proprietary credit models anddigital platforms have been able to finance businesses thathave not generally been targeted by traditional banks

• The market places offer a fundamentally lower-costoperating model, data advantage in scoring risk and asuperior customer (borrower) experience, driven by speedand convenience

• Few companies also operate Discounting platforms andfacilitate pre and post shipment finance

Investment in Indian fintechs have grown 7x in 2015 YoY

0.145

1.2

2014 2015

Investments (USD Bn)

companies in the P2P and SMElending space, with more than half

founded between January 2014to July 2015.

~30

Investment in alternate lending companies from January 2014

to July 2015.

~27 Million

USD

Source: Marketplace Lending, Deloitte; NBFCs: The Changing Landscape, Assocham 2015

Source: Fintech: Redefining banking for customers, CII 2016

Lending Business Models: Changing Channels

Marketplace Lending (MPLs)

Loan

Lendor(s) Borrower(s)loan repayments

(Fees/Commissions)

• Marketplace lenders (MPLs) directly match lenders

with borrowers via online platforms.

• They make money from fees and commissions from

borrowers and lenders

• MPLs use traditional, bank-like, credit-scoring

approaches, and publicise these credit risk scores

• MPLs offer transparency and control to lenders, such

as through disclosure on recipients of funds lent out

Source: Marketplace Lending, Deloitte

TReDS as a unique Marketplace Model

• TReDS provides a platform which enables ‘’Price

Discovery” of interest rates charged to MSMEs/Buyer

through a transparent bidding process, thus ensuring

cheapest working capital financing for MSMEs

• MSMEs are provided non-recourse, non- collateralised

financing and Financiers get Priority Lending Benefits

• Acts as a tool for buyers to onboard & adopt more

MSME suppliers into their vendor list. Better financial

health of MSMEs ensures quality & timely delivery of

material & Services to buyers.

The Way Forward …

• TReDS provides opportunities for all and shall facilitate GTR’s intent international corporates looking to enter the Indian market & Financial institutions providing funding options

• Futuristic aspect like “mobile app” shall ease the process & would lead to “Financing on the go”

• Credit risk insurance , secondary market opportunities, scope expansion to bring in the Non-PSL portfolio & export bills into TReDSfinancing solution purview would define the way forward

• Moving away from paper based & traditional trade to technologically superior, transparent, secure and agile platform like TReDS will help cost optimisation, better efficiency and heightened growth

• MSMEs are well poised to capitalise on the global trade opportunities

• TReDS is an appropriate platform to provide the MSMEs the financial solutions

• Will enable MSMEs to migrate to large players, compete in a equitable manner domestically & spread their wings globally

• Use of electronic & digital methods of payment has risen exponentially in India. Unique formal credit systems and Fintech nature of TReDS has appropriate acceptability

THANK YOU