How India’s trade finance ecosystem is being transformed through intelligent credit infrastructure and regulatory innovation
As India strives toward becoming a $5 trillion economy, ensuring inclusive access to capital for the country’s vast micro, small, and medium enterprise (MSME) sector has never been more critical. Two digital infrastructure innovations—Trade Receivables Discounting System (TReDS) licensed by RBI and International Trade Financing Services (ITFS) licensed by IFSCA — are reshaping the landscape of trade finance in India. They represent powerful levers not just for credit access but also for accelerating formalization, enhancing transparency and driving digital inclusion.
The Promise of TReDS and ITFS
For starters, TReDS (regulated by RBI) is a technology platform which enables MSMEs to upload domestic invoices raised to large buyers and post approval, financiers (banks/NBFCs) provide immediate cash flow to MSMEs after going through a competitive bidding process. Once funding is completed, financiers have no recourse on MSMEs and they debit the buyer’s account on the due date through an automated NACH mechanism. There are five TReDS platforms in India today who have collectively disbursed over $63B since inception with a CAGR of close to 80%.
On similar lines, ITFS platforms are IFSCA‑regulated digital marketplaces based in GIFT City, Gujarat that enable exporters and importers to seamlessly access global trade finance—offering services like factoring, forfaiting, bill discounting (including LC), reverse factoring, post‑shipment credit and supply‑chain finance through competitive, real‑time bidding among multiple financiers including foreign banks, factoring companies, IBUs, etc. There are four ITFS platforms in GIFT City today. These platforms are especially important given that India’s merchandise trade crossed $1.6 trillion in FY24 (exports and imports combined) with exporters often facing liquidity stress due to long payment cycles from overseas buyers.
Despite their benefits, adoption across the MSME universe of these platforms remains constrained. Out of an estimated 6.3 crore MSMEs in India, fewer than 1 lakh are active users of TReDS, indicating significant headroom for expansion. Many enterprises remain unaware, digitally unprepared or excluded due to rigid credit evaluation mechanisms.
AI-Powered Credit Scoring: Unlocking the Unbanked
he key to unlocking mass participation lies in transforming risk assessment. Traditional underwriting relies heavily on balance sheets and collateral—data points that many enterprises struggle to furnish. AI can shift the paradigm from collateral-based to cash-flow-based lending by analyzing alternative data sources that reflect real economic activity.
AI-driven credit engines can tap into GST filings, e-invoices, utility bill payments, account aggregator info, banking transaction patterns and even behavioral data to build a nuanced, dynamic profile of an enterprise’s creditworthiness. With real-time access to GST Network (GSTN) data, lenders on TReDS platforms can detect revenue patterns, verify invoice authenticity and assess compliance behavior—all of which feed into predictive models that outperform traditional scorecards.
For exporters and importers, integration with platforms like Indian Customs Electronic Gateway (ICEGATE), DGFT (Directorate General of Foreign Trade) and international shipping data can enrich transaction context and minimize fraud. When combined with AI-powered anomaly detection, these tools can lower underwriting risks, reduce turnaround times and widen the pool of eligible buyers.
The Power of Embedded Data Ecosystems
The true potential of TReDS and ITFS will be realized when they act not just as transaction platforms but as embedded nodes in a broader public digital infrastructure. This includes:
- GSTN: GST data from over 51 crore registered entities provides transaction-level visibility into sales, purchases, and tax compliance.
- E-invoicing, now mandatory for businesses with turnover above ₹5 crore, allows real-time verification of invoice legitimacy.
- GeM (Government e-Marketplace): For government procurement track records, order histories, and payment cycles. GeM procurement histories offer behavioral signals and transaction authenticity.
- UDYAM Portal: For authenticating MSME classification and size.
- MCA21 & Bank Statement Aggregators: To access consented financial data with speed and accuracy. It also provides entity status and incorporation details.
- ICEGATE – Validates export documentation and customs clearance.
With APIs and consent-based frameworks, Enterprises can share verified financial data in seconds—building trust instantly. AI models trained on these datasets can offer dynamic credit scores that reflect real-time financial health rather than historical balance sheet strength.
A GST-compliant, digitally visible buyer with regular GeM orders and steady cash flow may be eligible for better rates and higher limits—even without collateral or a long credit history.
Regulatory Shifts and the Road Ahead
Forward-looking regulatory reforms are critical to institutionalize trust and scalability across the system. Several key developments signal this shift:
- RBI’s push for interlinking TReDS platforms will improve discoverability of invoices and create a unified liquidity pool for financiers.
- IFSCA’s framework for cross-border factoring and invoice discounting via ITFS platforms opens the door for Indian exporters to tap global lenders in GIFT City.
- SEBI’s plans for invoice securitization (SRIs): Aims to turn MSME receivables into investable instruments.
- Expanded financier & risk coverage:
- RBI now allows insurance companies as fourth participants, enabling trade credit insurance and reverse factoring.
- Entities permitted under the Factoring Regulation Act can now participate as financiers.
- Secondary markets for already-financed invoices (Financing Units) have been allowed.
Additionally, allowing wider participation of fintechs, NBFCs, and foreign financial institutions (FFIs) can bring in innovation and capital depth. The use of Digital Public Infrastructure (DPI) and regulatory sandboxes enables safe experimentation with AI models and alternative credit frameworks.
Toward a More Inclusive Trade Finance Ecosystem
The road to financial inclusion is not paved merely with platforms—it requires intelligence, interoperability, and intent. TReDS and ITFS, when layered with AI and connected to a robust data-sharing ecosystem can break down traditional credit silos and democratize access to working capital.
India has already demonstrated the transformative power of digital rails like UPI and Aadhaar. Trade finance is poised for a similar leap. By building trust through transparency, reducing information asymmetry and personalizing credit through data, India can turn TReDS and ITFS into inclusive economic arteries that fuel the ambitions of every small entrepreneur—domestically and globally.
The future of trade finance is not just digital—it is intelligent, embedded, and inclusive.
