The Reserve Bank of India has issued draft guidelines for setting up and operating a Trade Receivables Discounting System in order to facilitate financing to micro, small and medium enterprises (MSMEs) and to help them convert trade receivables into liquid funds.RBI said that MSMEs, despite their important role in the economic fabric of the country, continue to face constraints in obtaining adequate finance, especially in terms of their ability to convert their trade receivables into liquid funds. It said that there is a need to address this pan-India issue through setting up of an institutional mechanism for financing trade receivables for MSMEs.The RBI said in a release that the scheme for setting up and operating an institutional mechanism for facilitating the financing of trade receivables of MSMEs from corporate buyers through multiple financiers will be known as Trade Receivables Discounting System (TReDS). As per the draft guidelines, TReDS will facilitate the discounting of both invoices as well as bills of exchange.MSME sellers, corporate buyers and financiers, both banks and non-bank (NBFC factors) will be direct participants in the TReDS. It will provide the platform to bring these participants together for facilitating uploading, accepting, discounting, trading and settlement of the invoices/bills of MSMEs.For entities desirous of setting up and operating the TReDS, RBI said that TReDS will not be allowed to assume any credit risk, its minimum paid up voting equity capital shall be Rs 100 crore. It also said that any additional voting equity capital to be brought in will depend on the business plan of the promoters. Further, the TReDS should have a net worth of Rs 100 crore at all times.It also said that foreign shareholding in the TReDS would be as per the extant FDI policy.