Budget 2026: TReDS Reforms to Unlock $60 Billion for MSMEs

A Landmark Move for MSME Financing

Union Budget 2026 has introduced a series of transformative reforms for the Trade Receivables Discounting System (TReDS), aiming to resolve one of the most persistent challenges for Micro, Small, and Medium Enterprises (MSMEs): access to timely and affordable working capital. Finance Minister Nirmala Sitharaman announced a four-pronged strategy designed to elevate the TReDS platform from an optional financing tool to a core component of India's financial infrastructure, directly addressing the issue of delayed payments and unlocking immense liquidity for small businesses.

Mandating Payment Discipline

The cornerstone of the budget announcement is the decision to make the use of TReDS mandatory for all purchases from MSMEs by Central Public Sector Enterprises (CPSEs). This single measure is a game-changer. By compelling CPSEs to settle transactions via the platform, the government aims to enforce strict payment discipline and set a benchmark for the private sector to follow. This addresses the long-standing problem of delayed payments from large buyers, which often cripples the cash flow of smaller suppliers.

Unlocking Market Potential

Industry experts estimate that this mandate has the potential to increase the transaction volume on TReDS platforms from the current level of approximately $4 billion to an astounding$60 billion. This fifteen-fold increase in throughput will dramatically deepen the supply chain financing ecosystem. As Anurag Jain, cofounder of TReDS-registered platform KredX, noted, "TReDS will shift from an optional fintech platform to system-level financial infrastructure—enforcing payment discipline, improving MSME pricing and creating deep secondary market liquidity."

The Four Pillars of TReDS Reform

The Finance Minister outlined a comprehensive plan to strengthen the TReDS ecosystem through four key interventions:

1. Mandatory Settlement for CPSEs: All purchases from MSMEs by central government-owned enterprises must be settled on the TReDS platform.
2. Credit Guarantee Support: A credit guarantee mechanism will be introduced through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This will backstop invoice discounting on TReDS, reducing the risk for financiers and encouraging them to offer credit at more competitive rates.
3. Integration with GeM: The Government e-Marketplace (GeM) will be linked with TReDS. This integration will allow financiers to access verified information about government purchases from MSMEs, facilitating quicker and cheaper financing based on confirmed transaction data.
4. Securitisation of Receivables: The budget proposes the introduction of TReDS receivables as asset-backed securities. This innovative step will allow discounted invoices to be bundled and sold to a wider pool of investors, creating a secondary market and injecting significant new liquidity into the system.

Summary of TReDS Reforms in Budget 2026

Budget 2026 Measure	Expected Impact for MSMEs
Mandatory TReDS for CPSEs	Enforces payment discipline, ensures timely payments.
CGTMSE Credit Guarantee	Lowers risk for financiers, leading to cheaper credit.
GeM-TReDS Integration	Improves data access for lenders, enabling faster financing.
Securitisation of Receivables	Creates a secondary market, enhancing overall platform liquidity.

A Holistic Strategy for MSME Growth

These TReDS reforms are part of a broader, three-pronged strategy announced in the budget to create "champion MSMEs." Beyond liquidity support, the government has also focused on equity and professional guidance. The strategy includes:

• Equity Support: A dedicated ₹10,000 crore SME Growth Fund will be introduced to provide equity to high-potential enterprises. Additionally, a ₹2,000 crore top-up to the Self-Reliant India Fund will continue to provide risk capital to micro-enterprises.
• Professional Support: The government will facilitate professional bodies like ICAI and ICSI to develop a cadre of 'Corporate Mitras'. These accredited professionals will assist MSMEs, particularly in Tier-2 and Tier-3 towns, with compliance requirements at affordable costs.

Market and Investor Outlook

The measures announced in Union Budget 2026 are expected to have a profoundly positive impact on the financial health and operational stability of the MSME sector. By institutionalizing faster payment cycles and reducing the cost of credit, the reforms will de-risk MSME operations. This makes the sector more resilient and attractive for both debt and equity investors. For the broader economy, a healthier MSME sector translates to a more robust supply chain, increased manufacturing output, and sustained job creation.

Conclusion

The TReDS-related announcements in Union Budget 2026 represent a structural shift in how supply chain finance is approached in India. By mandating its use and creating supportive mechanisms like credit guarantees and securitisation, the government is building a transparent and efficient ecosystem for MSME financing. The successful implementation of these measures will be crucial in unlocking the full potential of India's small businesses and integrating them more deeply into the formal economy.