Central Bank Considers Expanding Participation of Non-Residents in MSME Financing

Government Explores Ways to Involve Non-Resident Indians in Financing MSMEs

The Indian government is exploring ways to expand the role of non-resident Indians and overseas citizens of India (NRIs & OCIs) in financing micro, small and medium enterprises (MSMEs). This move is part of the government's efforts to ease access to funding amid disruptions caused by the war in West Asia. According to a senior government official, the Trade Receivables Discounting System (TReDS) currently allows financing only from RBI-regulated entities such as banks and non-banking financial companies (NBFCs), excluding NRIs and OCIs.

TReDS enables MSMEs to receive early payment on invoices by selling them to RBI-approved entities. While there have been discussions about broadening participation, any direct entry of non-resident or non-financial institutional investors would require regulatory changes. However, many investors may still have indirect exposure through their investments in banks, NBFCs, or other financial intermediaries that actively participate in TReDS.

Key Liquidity Support Mechanism for MSMEs

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Centre is fast-tracking the rollout of reforms announced in the Union Budget for 2027 around TReDS, positioning the platform as a key liquidity support mechanism for MSMEs facing pressure from higher input costs and export uncertainty. Central public sector enterprises (CPSEs) are being pushed to route payments to small suppliers through the platform and adhere to a 45-day payment cycle. Compliance is being actively monitored in recent months to ensure faster release of funds.

Participation on the TReDS platform is structured, with MSMEs, corporate and government buyers, and regulated financiers forming the core ecosystem. The Union Budget for 2027 had sought to strengthen the system by mandating CPSE participation, proposing credit guarantee support for invoice financing on TReDS, integrating the platform with government procurement systems, and outlining plans to enable securitisation of such receivables.

Progress and Challenges Ahead

While CPSE participation mandates and compliance monitoring have already been operationalised, and steps to integrate procurement flows are underway, key regulatory elements such as the credit guarantee framework and broader investor participation norms are still under development.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline