TREDS Platform

• The government and Reserve Bank of India (RBI) are looking to integrate GSTN (Goods and Services Tax Network) with TReDS (Trade Receivables Discounting System) platforms to enable direct sanctions of MSME invoices.
• The government shall use an Account Aggregator for this process.

What is TReDS ?

• Trade Receivables Discounting System (TReDS) platforms are digital platforms that provide a mechanism for small and medium-sized enterprises (SMEs) to raise funds by selling their trade receivables or invoices to financiers at a discounted rate.
• These platforms facilitate the early realization of funds, helping SMEs improve their cash flow and working capital.

What is GSTN ?

• The Goods and Services Tax Network (GSTN) is a technology platform established by the Indian government to manage the implementation of the Goods and Services Tax (GST) system.
• It serves as a backbone for the GST regime, facilitating taxpayer registration, invoice filing, tax payment, and return filing processes.

What is Account Aggregator ?

• An account aggregator is a financial intermediary that collects and consolidates a user’s financial data from various sources such as banks, mutual funds, insurance companies, and other financial institutions.
• Account Aggregator Network (AAN) is an RBI-regulated entity (with an NBFC-AA license) Currently, 23 banks from both public and private are under the AAN. AA framework was created in 2021 through an inter-regulatory decision by RBI and other regulators including SEBI, IRDA, and PFRDA through an initiative of the Financial Stability and Development Council (FSDC).

Benefits of this move

• Integration will ensure that e-invoices raised by MSMEs on GSTN can come directly to the TReDS portal, thus negating the need for any additional activity or documentation.
• It will also lead to faster loan underwriting and sanctions as sourcing directly from the GST platform will provide more assurance and comfort to financiers with respect to the genuineness of invoices.
• In addition, it will help build an alternative credit database, especially for MSMEs with weak or minimal credit history.

Practice Questions for Prelims

Consider the following statements:
1. TReDS platforms are digital platforms that provide a mechanism for all kinds of enterprises to raise funds by selling their trade receivables or invoices to financiers at a discounted rate.
2. These platforms facilitate the early realization of funds, helping SMEs improve their cash flow and working capital.

Which of the above given statements is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

Ans. b)

Mains Practice Question

Discuss how proliferation of TReDs can solve problem of liquidity crunch faced by MSMEs from time to time.

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