CIO & LEADER-Issue-01-April 2018 (1)

Insight
T
The yet-unnamed blockchain,
built on HyperLedger Fabric,
will be used to secure
recievables financing
This month, three Indian factoring
exchanges and the American
blockchain technology firm MonetaGo
announced launching of a fullfledged
blockchain. The yet-unnamed
blockchain, built on HyperLedger
Fabric, will be used to secure
receivables financing.
The three factoring exchanges
involved are:
RXIL or Receivables Exchange
of India (RXIL), a joint venture
between NSE Strategic Investment
Corporation Ltd (NSICL) and Small
Industries Development Bank of
India (SIDBI)
A.TReDS, a joint venture between
Axis Bank and mjunction Services
M1xchange, operated by Mynd
Solutions
RXIL, Axis Bank and Mynd
Solutions were licensed by the
Reserve Bank of India to operate
Trade Receivables Discounting
System (TReDS), as the service is
known in regulatory parlance, in
November 2015.
MonetaGo, a New Yorkbased
technology firm, is an old
India hand. It was the primary
technology supplier for a blockchain
trial conducted by Institute of
Development & Research in Banking
Technology (IDRBT), RBI’s research
arm, in January 2017. National
Payment Corporation of India (NPCI)
and multiple banks participated in
the trial, which incidentally was also
around trade finance and was also
built on Hyperledger Fabric.
Tech-leveraged Invoice
Discounting
The process of bundling and selling
invoices at a discount, is a major
source of working capital finance
for small and medium (MSME)
companies. Suppliers to any large
company are paid typically in 30 to
120 days. But since the MSME needs
working capital, financial companies
buy the invoices at a discount and
provide finance to the MSMEs and
later collect the money from the
buyer. Because the invoices are
bought at a discounted rate, the
practice is popularly known as
invoice discounting,
While the practice itself is quite
old, in the last few years technology
platforms are being used to make
the process faster and efficient. The
platforms work like any auctioning
platform. Typically, a seller uploads
an invoice on the platform, which
is approved by the buyer. Once
approved by the buyer, the invoice
becomes a factoring unit and is
auctioned on the platform which the
financiers try to buy by entering their
discounting rate. After the final bid is
accepted by the seller (or the buyer, in
case the buyer is bearing the interest
rate), the TReDS platform settles the
trade. The financier is debited and the
supplier is credited.
The shift to new technology-based
platforms is catalysed by RBI’s
proactive stance to promote the usage
along with rapid developments in
financial technologies. This stems
from the Government’s thrust on
energizing the MSME segment to
drive economic growth.
RBI came up with a concept paper,
Micro, Small & Medium Enterprise
Factoring-Trade Receivables
April 2018 | CIO&LEADER
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