JAIIB | IE AND IFS | TRADE RECEIVABLES E-DISCOUNTING SYSTEM (TReDS)- CASE STUDY

The Trade Receivables Discounting System (TReDS) is a digital platform designed to address the issue of delayed payments faced by Micro, Small, and Medium Enterprises (MSMEs) in India. By simplifying the financing of trade receivables, TReDS provides an efficient mechanism for improving the cash flow of MSMEs, enabling them to access credit quickly and at competitive rates. Learning Sessions presents this article on the case study that explains the working of TReDS, its impact on the Indian Economy (IE), its role in the Indian Financial System (IFS), and its importance for JAIIB candidates.

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TReDS is an institutional mechanism for financing trade receivables of MSMEs from corporate buyers, government departments, and public sector undertakings (PSUs) through multiple financiers. It was introduced by the Reserve Bank of India (RBI) to ease the liquidity challenges MSMEs face due to delayed payments from large buyers. TReDS facilitates the discounting of invoices in a transparent, electronic environment, enabling MSMEs to receive early payments for their goods and services.

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Key terms:

• Trade Receivables: Outstanding invoices that a business is owed for goods or services delivered.
• Discounting: The process where receivables are sold to financiers at a discount, providing immediate cash to the seller.
• MSME: Micro, Small, and Medium Enterprises, which form a crucial part of India’s economic backbone.

TReDS operates as an online platform where MSMEs, corporate buyers, and financiers (banks or financial institutions) interact. 

Types of Participants in TReDS:

1. MSMEs (Sellers)
2. Corporate Buyers
3. Financiers

In general, it can be said that TReDS is a transformative programme that addresses the well-established issue of delayed payments faced by MSMEs in India. For JAIIB aspirants, considering the aspect of TReDS in the Indian Economy and its importance within the Indian Financial System is central as it represents a key component of modern trade finance and financial inclusion. Learning Sessions provides additional information about JAIIB IE & IFS FAIR GLOBALIZATION AND DEGLOBALIZATION by giving examples of real life scenarios.

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