By Sundeep Mohindru, Founder & Promoter, M1xchange
India’s MSME sector is central to the country’s economic growth, but timely access to working capital remains a persistent bottleneck. Delayed payments are one part of the problem. For many smaller businesses, access to finance also depends on where they sit in the supply chain.
Consider a small manufacturer supplying components to another medium-sized business. The transaction may be genuine and supported by an established business relationship, but the receivables can remain outside established formal financing channels. Unlike invoices issued to large corporates, receivables from smaller MSMEs may have fewer avenues for structured financing.
India has made meaningful progress in formalizing receivables-based financing through the Trade Receivables Discounting System (TReDS). The platform enables MSMEs supplying large corporates and government entities to access working capital against eligible receivables. However, supply chains do not stop at Tier-1. Tier-1 MSME suppliers also sell to other smaller businesses, exporters and distributors, creating multiple layers of transactions across the value chain.
Financing access, therefore, needs to evolve alongside the structure of these supply chains. Deep-tier financing represents one such evolution. It takes receivables-based financing beyond the traditional anchor-led model and seeks to enable businesses further down the supply chain to access working capital against genuine trade transactions. For MSME-to-MSME transactions, this could bring a larger share of inter-business trade into the formal financing ecosystem.
The importance of this shift is particularly relevant in India, where enterprises operate through highly interconnected supply chains. A working capital constraint at one level can ripple across the chain, affecting production, inventory cycles, supplier payments and the ability to take on x`new orders.
Traditional lending has often assessed smaller businesses based on standalone financial metrics, collateral, and credit history. While these factors will continue to matter, they may not always capture the full strength of an ongoing commercial relationship. They may also overlook the quality, frequency, and predictability of the underlying transactions.
Receivables-based financing offers a different lens. Looking more closely at actual business transactions and associated cash flows can make it easier for businesses with limited collateral or a shorter formal credit history to access working capital, particularly when they are part of an established supply chain.Deep-tier financing takes this principle a step further by bringing transactions between smaller businesses into more formal financing channels. This can potentially extend liquidity to businesses that may otherwise remain outside conventional supply-chain finance programs and help address working capital gaps across multiple layers of the value chain.
The greater opportunity is to build a financing ecosystem in which access to credit is not determined solely by the size or credit profile of the buyer at the top of the chain. Financing should increasingly be anchored to verifiable transaction data, including the movement of goods and services, and actual cash flows generated through ongoing commercial relationships.
That matters because working capital is what keeps a supply chain moving. When businesses can access funds against their receivables sooner, they can replenish inventory, meet payroll, fulfill larger orders, and pursue new opportunities without waiting for lengthy payment cycles to run their course.
As Indian supply chains become more interconnected and digital, financing mechanisms will need to become more inclusive as well. TReDS has established an important foundation for formal receivables financing and helped MSMEs access funds against their receivables. Deep-tier financing can build on this foundation by extending formal credit to businesses further down the value chain.
Ultimately, deep-tier financing is the next necessary step toward a truly inclusive credit architecture. As supply chains digitize, platforms, lenders, and enterprises must embrace models that recognize and finance trade at every tier. The opportunity now is to bring more of these genuine business relationships into the formal financial system, so that smaller enterprises have the liquidity they need to grow, invest, and pursue new opportunities.