DETERMINANTS OF COST OF FUNDS IN TREDS: THE REALM OF MSME FINANCE

Paper Number :WP61/2026
Publication Date :March 31, 2026

We find that introduction of TReDs has largely benefited the MSMEs. Under TReDs, MSMEs have seen a significant decrease in interest expenses, averaging around 8%. This reduction is attributed to interest rates being determined by the credit rating of larger buyers rather than the MSMEs' own creditworthiness. Analyses show that as buyers' credit ratings improve, MSMEs experience lower interest costs. Notably, Micro enterprises incur higher rates than Medium ones, while Small enterprises only faced higher costs in 2025. There's a significant negative correlation between the number of bids and interest rates, indicating that more bids generally lead to lower funding costs. Additionally, higher financing unit values reduce interest costs. However, average loan tenure results varied, with longer tenures leading to higher rates in 2022-2023 and lower rates in 2024-2025.