Role of TReDS in Bridging Formalisation and Financial Inclusion for MSME Supply Chains

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economy, contributing significantly to employment and GDP. However, MSMEs face persistent challenges such as delayed payments, limited access to affordable working capital, lack of credit history, and difficulties in complying with complex regulatory requirements. The issues constrain their growth, limit access, and restrict their ability to compete effectively in both domestic and global markets.

To address these challenges, the Government of India has launched several pioneering initiatives.

GOI Initiatives: Udyam Registration and Udyam Assist

The Udyam Registration initiative has formalised over 6.6 crore MSMEs through a unified digital identity. This facilitates compliance and access to multiple government schemes. Data shows that MSMEs with Udyam registration enjoy improved credit profiles, boosting eligibility for priority sector lending, collateral-free loans, and subsidies, strengthening their formal economy presence. Recent government figures indicate these MSMEs experience up to a 20% increase in institutional credit access.

RAMP Scheme Empowering Rural MSMEs

The RBI’s RAMP (Rural Area Micro Product Enterprises) scheme targets rural MSMEs by encouraging formalisation through Udyam. It enables credit access and incentivises TReDS platform participation. District-level capacity-building initiatives under RAMP facilitate rural MSMEs’ transition into formal financial ecosystems. Studies report a 25% liquidity improvement among RAMP beneficiaries and reduced dependence on costly informal credit.

Enhancing Quality with ZED Certification

The Government’s Zero Defect Zero Effect (ZED) certification encourages MSMEs to adopt quality manufacturing and sustainable practices. ZED-certified MSMEs gain enhanced market credibility and buyer confidence, leading to timely payments and better financing terms on platforms like TReDS. This boosts their eligibility for formal credit and government support.

Capacity Building for Sustainable Financial Inclusion

Continuous capacity building is vital for MSMEs to fully utilise financing platforms. Training in digital literacy, financial management, and compliance across Udyam, TReDS, and RAMP schemes is conducted at district and block levels. MSMEs engaged in such programs report higher loan approval rates and sustained usage of platforms like TReDS, reinforcing financial inclusion.

Persistent Challenges Beyond the GOI Initiatives

Despite government initiatives and regulatory support, many MSMEs still face critical challenges such as delayed payments and limited access to affordable working capital. Industry reports indicate that approximately 60% of MSMEs suffer from cash flow constraints caused by delayed payments, restricting their ability to grow and sustain operations.

Bridging the Gap with TReDS

Introduced by the Reserve Bank of India in 2014, Trade Receivables Discounting System (TReDS) is an electronic platform that digitises and facilitates the financing of MSME trade receivables by converting invoices into immediate access. By offering a unified marketplace that connects buyers, sellers, and financiers, TReDS ensures transparency, faster payments, and competitive financing rates. Studies reveal TReDS reduces invoice payment cycles by 30-40%, significantly improving MSMEs liquidity.

Udyam certification serves as a keystone for MSMEs to efficiently onboard TReDS platforms. Leading TReDS platforms like DTX by KredX have integrated onboarding with the Udyam portal, streamlining verification and accelerating financing access. This has boosted platform onboarding rates recently, enhancing comprehensive financial inclusion.

Regulatory Support in Strengthening the Ecosystem

• The Reserve Bank of India mandates companies with turnovers above ₹250 crore and central public sector undertakings to onboard TReDS platforms.
• Integration of TReDS with public procurement portals such as GeM ensures prompt payment to MSMEs, fostering improved cash flow management and compliance. 
• Government schemes alongside Udyam enable MSMEs to avail benefits such as the Credit Guarantee Fund Scheme and protection against delayed payments, supported by TReDS platforms.

Way Forward 

While TReDS adoption has accelerated among large corporates and urban MSMEs, there is significant untapped potential in tier-2, tier-3 cities and rural MSMEs. Facilitating wider onboarding through awareness campaigns, simplified onboarding processes linked with schemes and  interfaces will democratise access to affordable financing.  Together with quality initiatives such as ZED certification, capacity building, and RAMP, TReDS create a framework enabling MSME growth, financial inclusion, and resilience in India’s rapidly evolving economy.