NEW DELHI: The government on Sunday proposed creating a secondary market for MSME invoices by allowing these receivables to be packaged as asset-backed securities. This is among a slew of reforms to the Reserve Bank of India–run Trade Receivables Discounting System (TReDS).
Presenting the Union Budget for 2026-27, finance minister Nirmala Sitharaman proposed to “introduce TReDS receivables as asset-backed securities, helping develop a secondary market, enhancing liquidity and settlement of transactions.”
The proposal aims to broaden funding avenues for micro, small and medium enterprises (MSMEs) by turning verified invoices into tradable instruments, enabling banks and non-banking financial companies (NBFCs) to recycle capital and attract longer-term investors.
Asset-backed securities are created by pooling loans or receivables and selling them to investors through a process known as securitization. Investors are repaid from the cash flows of the underlying assets.
While there is no separate data for securitization of receivables, rating agency Icra Ltd estimates that overall securitisation volumes grew 2% year-on-year to ₹1.87 trillion in the first nine months of FY26, with 9MFY26 volumes driven by a few large corporate transactions.
Mint reported in November 2025 that banks and NBFCs were reluctant to lend to MSMEs, leading to low disbursals under flagship schemes such as the PM Employment Guarantee Programme for MSMEs.
Reserve Bank of India governor Sanjay Malhotra, in early January, had urged lenders to maintain sound underwriting standards and closely monitor loan quality.
“Recognizing TReDS receivables as asset‑backed securities would fundamentally elevate MSME financing by transforming verified invoices into a trusted investment asset,” said Sanjay Doshi, partner and head, transaction services and financial services advisory, KPMG in India.
According to Doshi, the shift can attract deeper institutional capital, lower the cost of working capital for MSMEs, and create a more liquid, transparent and resilient credit ecosystem.
Some market participants, however, cautioned that building investor appetite may be challenging. Short-term loans financing such transactions typically yield about 8-9% when the buyer is a well-rated company. Since asset-backed securities, pooled from a clutch of such bills, are sold at a discount, investors may be reluctant to buy instruments that yield below roughly 8%, experts said.
Industry groups have broadly welcomed the reform.
“In simple terms, invoices raised by MSMEs and financed on the TReDS platform will be pooled and converted into tradable securities,” said Vinod Kumar, president of the India SME Forum, which represents about 97,000 businesses.
Instead of banks or NBFCs holding MSME invoices on their balance sheets until maturity, they can bundle hundreds or thousands of receivables and sell them as asset-backed securities to long-term investors such as mutual funds, insurance companies and pension funds, he said.
“Asset-backed securities on TReDS can transform MSME receivables into a scalable, low-cost funding channel—provided underwriting discipline, transparency, and risk safeguards are maintained. Done right, this is a structural reform, not a scheme,” Kumar added.
Experts also described the move as a positive step toward easing access to capital for cash-strapped MSMEs. “The asset-backed securitisation can lead to access to capital for MSMEs,” said Veeramani C, professor and director, Centre for Development Studies, a think tank.
Acknowledging that adoption will take time, Veeramani said, with businesses that are part of the GST regime and possess the necessary certifications to issue legitimate invoices are likely to be the main beneficiaries.
