Sivakumar Chockalingam

India’s MSMEs Problem Is Not Credit, It’s Cash Flow! India’s MSMEs Problem Is Not Credit, It’s Cash Flow! Sivakumar Chockalingam August 29, 2026 Indian Economy, Public Policy, State Economies, Youth Entrepreneurship Why MSMEs reforms matter — and why TReDS could be the missing link between sales and liquidity? India’s MSME challenge is often described as a credit-access problem. Increasingly, it should be understood as a cash-flow architecture problem. Credit can finance growth. Small businesses often lack collateral, have limited financial histories and face higher borrowing costs. But a more fundamental problem is receiving payment for work already completed. For many micro and small enterprises, the most important source of working capital is not another loan. It is the timely realisation of their receivables. The scale of the problem is significant. The Economic Survey 2025-26 estimates that around Rs.8.1 lakh crore are locked in delayed payments to MSMEs. The Survey notes that delayed payments particularly affect micro-suppliers, constraining liquidity and growth. It also identifies the expansion of TReDS (Trade Receivables Discounting System) and digital invoicing as important interventions in addressing the problem. TReDs /Domestic Trade Exchanges system are regulated by RBI through the Receivables Exchange of India Ltd. A small supplier may hesitate to pursue a delayed-payment claim against a major customer because the customer may also be its most important source of future business. The Economic Survey explicitly recognises this tension: MSMEs may fear damaging commercial relationships by taking formal legal action. This is one reason why faster, lower-cost and less adversarial dispute resolution matters. Further, the Union Ministry of MSME’s Annual Report-2025-26 provides another indication of the enforcement gap. As on 31 December 2025, 2,56,892 applications had been filed on the MSME Samadhaan Portal, involving Rs.55,244.31 crore. Of these, 53,911 cases had been disposed of by MSEFCs, involving Rs.14,638.38 crore. At the same time, 52,744 applications involving Rs.8,397.25 crore were still awaiting review. These figures do not capture the entire universe of delayed payments — the Economic Survey’s Rs.8.1 lakh crore estimate is much broader — but they demonstrate how difficult it can be for an MSME to convert a payment claim into actual cash. The issue is not merely financial. It is behavioural. This is why the delayed-payment provisions and the growing role of the Trade Receivables Discounting System (TReDS) deserve to be viewed together. The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, passed by Parliament on 7 August 2026, could represent a meaningful shift from simply expanding credit to strengthening the cash-flow architecture around MSMEs. The latest amendment attempts to strengthen the systemic issues. It provides for Online Dispute Resolution, introduces timelines for mediation and arbitration, and strengthens enforcement of mediated settlements and arbitral awards. If an application to set aside an award remains pending for more than six months, courts are mandated to order payment of at least 50% of the awarded amount to the micro or small enterprise supplier. Awards and mediated settlements can also be recovered as arrears of land revenue through the appropriate authority. These provisions matter because a legal entitlement has limited economic value if the enterprise cannot survive long enough to realise it. But enforcement after a payment default should be the second line of defence. The more important policy objective should be to make delayed payments less damaging in the first place. This is where TReDS becomes strategically important: TReDS effectively allows an eligible MSME receivable to become a source of liquidity before the buyer’s contractual payment date. An invoice accepted by the buyer can be discounted through an RBI-regulated platform, with financiers competing to fund the receivable. The MSME receives cash earlier while the buyer continues according to the agreed payment cycle. The scale-up has been striking. According to the Ministry of MSME, invoice discounting on TReDS has increased from about Rs.40,000 crore in 2022-23 to Rs.3.47 lakh crore in 2025-26. In July 2026, the Union government also notified that all operating Central Public Sector Enterprises must route settlement of invoices for goods and services procured from MSMEs through TReDS platforms. TReDS system can turn verified receivables into liquidity. Credit institutions can increasingly use such data to understand the underlying quality of a business. The next logical step is to connect these pieces into a coherent MSME cash-flow ecosystem. For policymakers, therefore, the question should not be simply how much additional credit can be made available to MSMEs. It should also be: how much of the MSME’s existing economic value is trapped because payment does not arrive on time? A business that has already delivered Rs.1 crore of goods or services does not necessarily need another Rs.1 crore loan. It may need its Rs.1 crore receivable to become liquid. That distinction is important because borrowing to compensate for delayed payments can increase leverage and financial costs. If receivables can instead be financed competitively and transparently, the enterprise can maintain production, pay employees and suppliers accept new orders and grow without repeatedly refinancing the same working-capital gap. Yet TReDS system should not become an excuse for buyers to routinely extend payment cycles. Invoice discounting solves the liquidity problem; it does not fully solve the underlying payment-discipline problem. It is also not mandatory for private sector vendors. The policy objective should therefore have two layers. First, make timely payment the norm through stronger disclosure, enforcement and institutional accountability. Second, provide efficient receivables financing when payment cycles create unavoidable working-capital gaps. This is particularly relevant for states such as Tamil Nadu, where millions of MSMEs (are deeply embedded in industrial supply chains — from engineering and auto components to textiles, food processing and a wide range of services, etc. The effectiveness of the national reforms will ultimately depend on adoption at the state and cluster level, including awareness among smaller enterprises and participation by buyers, banks and financiers. Therefore, the 2026 MSMEs reforms are therefore important not simply because they amend a 20-year-old law. They bring together three pieces of a larger policy puzzle: faster dispute resolution, stronger recovery