RBI seeks feedback from market participants on concept paper on trade receivables and credit exchange

MUMBAI: The Reserve Bank on Wednesday sought feedback from market participants on its concept paper on trade receivables and credit exchange, or TCE, for funding micro, small and medium enterprises.

The country’s 36 million micro, small and medium enterprises (MSME), which account for about 10% of the country's GDP, stand to get a boost if RBI governor Raghuram Rajan’s proposal to change the way trade credit is treated is implemented.

In a statement put up on its website on Wednesday, the RBI sought to know if the basic process flow for the TCE first stage is adequate. This stage involves steps from a buyer corporate sending an order to an MSME to a buyer corporate directly paying the financier. The RBI has also sought market view on whether additional features are required.

Earlier, Rajan had underscored the need to develop a mechanism that would help small companies’ sluggish payment cycle, which often erodes their capacity to repay bank loans. Typically, a supplier waiting for 90 or 120 days to receive payments from goods’ producers may be able to discount receivables in an electronically operated exchange, similar to the stock exchanges.

The RBI has also sought participants’ views on some aspects of the proposed secondary market trading. For instance, should the secondary market platform be auction based or order matching? What are the additional features and functionalities required in the secondary market module?