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A fully automated acceptance of and auction of bills can help reduce transaction costs and facilitate better pricing for micro, small and medium enterprises (MSME), according to RBI Governor Raghuram Rajan.
“If a trade receivable exchange is set up with fully automated acceptance of bills and auction of bills, then we can reduce the transaction cost considerably. The RBI has been discussing with market participants on how to do this, and in a very short while, we should have the structure being put in place,” Rajan said at a Nasscom event.
According to him, “the key is the need to reduce transaction costs by automating every aspect of the transaction and once we have reduced the cost and have a very high-volume business, we can go very, very far and financial inclusion will be done.”
“One of the problems with MSME is the fact that they get squeezed by large buyers who delay their payments when they are tight on credit, and they start by delaying payments to the small suppliers, who have very little bargaining power. Once the MSME sells its receivables on the large buyers’ market, the MSME would get its money quickly, but the market would get a claim on the better rated large buyer instead of holding the claim,” Rajan said.
Of course, the large buyer would get a better price for the services being supplied. The transaction cost of selling these bills in the market may be higher than if done individually, he added.
Social media
The RBI Governor also expressed his thoughts on using social media to serve better regulation and information sharing. “It’s a thought that, perhaps, over time we can use social media. Of course, there shall be a lot of filtering of what comes in through social media so that we can get true information as opposed to rumour, and also be careful about spreading it back without verifying. These are early days given that the Nasscom assembly is thinking of SMAC (social, mobility, access, cloud), in which social media is a prime component,” Rajan said.
“It is something we regulators have to start thinking about — how we can utilise social media for better regulation. It’s early days, there are no plans but this is something we have to consider,” he added.
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