RBI Permits Insurance Cos to Offer TReDS insurance, Enhancing Financial Security for Trade Receivables

Circular No. RBI/2023-24/37 CO.DPSS.POLC.No.S-258/02-01-010/2023-24, Dated 07.06.2023

Earlier, the RBI had issued the ‘Guidelines for the Trade Receivables Discounting System’ to ease constraints faced by MSMEs in converting their trade receivables to liquid funds. Currently, only three entities operate TReDS platforms in the country namely MSME sellers, buyers and financiers.

The guidelines allow financing / discounting of MSME receivables on “without recourse” basis by permitted financiers. Currently, three entities operate TReDS platforms in the country; one more entity has also been given in-principle authorisation to operate such platform.

Now, based on the experience gained, RBI has allowed the insurance companies to participate as “fourth participant” in TReDS. Also, in their business / operational rules, the TReDS platform operators may specify the stage at which insurance facility can be availed. Premium for insurance shall not be levied on the MSME seller.

Further, collection of premium and related activities could be enabled through National Automated Clearing House (NACH) system used for settlement of TReDS transactions. Based on consent received from financiers and insurance companies, TReDS platforms could facilitate automated processing of insurance claims and specify timelines for their settlement through the NACH system.

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