Invoice discounting platform M1xchange announces cash flow-based factoring solution for MSMEs

Credit and financing for MSMEs: M1xchange, one of the providers of invoice discounting and factoring services on India’s TReDS platform, in partnership with private lenders YES BANK and RBL Bank, announced that it has started testing the product” Small-Small Factoring” subject to Reserve Bank of India (RBI). third cohort of the regulatory sandbox. According to the company, the product aims to facilitate “early liquidity” for buyers and sellers of MSMEs.

The product essentially consists of a numerical credit assessment of MSMEs through their cash flows. It analyzes authentic and non-repudiable MSME data from multiple digital sources to generate insights into a company’s credit profile. The cash flow-based approach alleviates traditional concerns about the authenticity of MSME financial data, a key data source in the traditional balance sheet-based credit assessment model, the company noted.

When fully rolled out, the product is expected to help bridge a credit gap of over $750 billion for MSMEs in India. Product testing is expected to be completed by September 2022.

“In the current inflationary market, where the cost of raw materials has multiplied by several times and where stocks must be purchased in advance to manage the disruption of supply chains, the working capital needs of MSMEs are very high. . Traditional OD/CC limits sanctioned on the basis of MSME financial data and the guarantees they provide will not meet WC’s needs. The cost of financing outside the banking system is very high for MSMEs,” said Sundeep Mohindru, CEO of M1xchange.

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Thanks to this solution developed by M1xchange TReDS, MSME companies will be able to use TReDS for the discounting of receivables of their MSME buyers and MSME buyers will in turn be able to source their supplies at better prices and manage their inventory in an adequate way, a- he added.

In the current TReDS model, the majority of buyers are large with a turnover of over Rs 500 crore and a long-term credit rating better than A-. However, financiers lack appetite for credit for MSME buyers, who lack the balance sheet strength associated with a large corporate buyer, M1xchange said.

“This unique approach to digitally harnessing data and risk analysis – which could help replace the traditional balance sheet-based risk assessment model with cash flow-based credit analysis – has the potential to be a game-changer. to provide better and faster access to credit to MSMEs, while helping the bank (Yes Bank) to strengthen its position as the preferred ‘digital partner’ of MSMEs,” said Ajay Rajan, Country Manager – Transaction Banking, YES BANK.

Also read: ECLGS: 1.19 crore MSMEs, other businesses benefited till June 2022; Rs 3.48 lakh cr loans sanctioned

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