Feb

2023

Union Budget 2023 and Its Impact on Startups

02 Feb 2023

Union Budget 2023: Fintech Startups Take Center Stage

The Union Budget 2023, presented by the Finance Minister on February 1, 2023, has put a strong emphasis on the growth of fintech startups in India. The government has recognized the role that fintech startups play in driving digital financial inclusion and boosting economic growth and has allocated a significant portion of the budget to support their growth and development.

Dr. Ganesh Natarajan, Advisory Committee Member of India FinTech Forum and Chairman at 5F World, welcomed the union budget 2023 and said, “It’s a pragmatic and fiscally prudent budget and will surely set India on track to “Amrit Kaal”. FM has emphasized the importance of the finance sector and specifically called out fintechs. Widening the scope and content of Digi lockers will enable more collaborative applications to emerge. Accessing credit has also been made easier for SMEs and my belief is that accessing capital depends on the strength of the idea and a robust business model. All in all, an excellent budget.”

Mr. Alok Mittal, Strategy and Policy Committee Member of India FinTech Forum and Managing Director, Indifi Technologies shared his insights on the impact the growth and development of fintech startups in India. He said, “The budget has made certain announcements regarding creating a more robust data infrastructure in the country, for the purpose of financial inclusion. There is a proposal to expand the scope of services in digilocker and provide access to fintechs. One of the key areas of friction that remains in financial inclusion is KYC for MSMEs and we hope that this expansion in scope includes MSME KYC related elements, alongwith the required regulatory recognition of those mechanisms. Similarly, the announcement of National Financial Infrastructure Registry promises to streamline consent-based availability of financial information, thereby widening credit coverage. In line with the prior RBI’s intent of promoting the Public Credit Registry, we hope that real time credit information will be an integral part of NFIR.”

Will the budget address the challenges faced by startups in accessing capital and credit?

“In the Fintech Lending space, several credit guarantee schemes have been constrained for access by younger companies. For example, the CGTMSE scheme is available for loans under 18% interest rate, and this limits the utility to NBFCs with very low cost of funds. Similarly, the CGMFU is limited to NBFCs over 500 cr AUM requiring BBB+ rating or above – newer NBFCs don’t qualify any of these criteria. While the budget has renewed the allocation towards credit guarantee scheme, the barriers mentioned above preclude startup fintech businesses from availing of the same, and in turn, limit the impact that these startups are making on financial inclusion.” said Mr. Mittal.

Mr. Rahul Jain, IFTA Committee Member, also shared his views on the Union Budget 2023 and said, “The Honorable Finance Minister has tabled a budget which truly represents New India. Thrust has been provided on catalysing robust growth across sectors and digitisation is at the centre stage of all development related initiatives. This budget has given impetus to some of the most emerging sectors such as Green Energy, EV and Emerging Technology, Agri Tech, and Fintech among others. Announcements on enabling more innovative fintech-driven services, simplifying KYC and expanding Aadhar, Digilocker, UPI etc. clearly lays the foundation of expanding the fintech footprint across Bharat. In the last couple of years, the Indian economy has become more formalised as witnessed by the significant enhancement in digital payments. Hon’ble FM has signalled the governments intentions in driving further innovations for the overall startup and fintech ecosystem which in turn will catapult the Indian economy to greater heights. Also, this year’s budget has reiterated the Government’s commitment in making India as the most startup friendly destination through the extension and introduction of various taxation benefits for the sector. Besides the proposed introduction of National Data Governance Policy will definitely simplify data governance processes and enhance individual user protection which is extremely critical and an absolute need of the hour.”

Mr. Prasanna Lohar, Executive Committee Member of India FinTech Forum commented on the union budget 2023 saying that, “Fintech is now an integral part of Banking and Finance. We should see how customer experience can go to the next level with the collaboration among Regulators, Banks, and Fintechs. There are many areas in India to be nurtured with Fintech around regulation, API Standardization, Platforms Consolidation, Payment experiences, and Use Cases. While State Governments, Investor Communities, Banks, RBI, and other regulators are driving many fintech Initiatives. It’s High time for India to have Fintech Officer & National Fintech Policy. This Budget should give the right direction to Fintech Acceleration Momentum.

It’s great to see how Budget has come up today. This budget has emphasized on few of startup relevant factors as below:

- Simplifying KYC process: The KYC process will be simplified and more personalized instead of a “one size fits all” approach.
- A new solution for updating the identity and address of citizens will be established using DigiLocker and Aadhaar framework.
- DigiLocker documents scope being expanded to enable Fintech services.
- Entity-based DigiLocker service will be launched for MSMEs, large businesses and charitable trusts.
- National Data Governance Policy will be set up giving access to anonymized data
- Make AI in India and Make AI work for India will drive AI Adoption in India
- Pradhan Mantri Kaushal Vikas Yojana 4.0 is to be launched with courses on Industry 4.0 like coding, AI, robotics, mechatronics, IoT, 3D printing, drones and soft-skills.
- 5G services: 100 labs to be set up in engineering institutions to develop applications like smart classrooms, precision farming, smart transport system and health care applications.

In conclusion, the Union Budget 2023 has put fintech startups in India front and center, with a range of measures aimed at supporting their growth and development. With the government’s support, the fintech sector in India is poised for rapid growth in the coming years, and will play a key role in driving digital financial inclusion and boosting economic growth.

Jan

2023

Financial Inclusion led by 5Ds of Digital Lending

Amit Das

03 Jan 2023

The Rise of Retail Loans

The Indian lending market grew to 174.3 lakh crore in March 2022, up by 11.1% in March 2021, driven primarily by high value commercial and retail lending. Over the last few years, individuals have turned to various non-banking financial companies (NBFCs), fintechs and their digital lending platforms for faster credit, as compared to banks. These lenders have shown a preference for a large number of retail loans since these have a smaller risk of default as compared to high-value corporate loans. Pay cuts/ layoffs during the pandemic and the post-pandemic rising cost of inflation have further necessitated the financing of personal needs through loans. Even in the midst of the global gloom of an impending recession, banks in India witnessed a surge in consumer demand across segments last quarter, as India geared up for full-fledged festive season celebrations after two and a half years.

The Role of Digital Lending in Credit Expansion

New age NBFCs and fintechs lending through digital platforms have been able to address consumer demand by providing hassle-free and faster credit, especially for new-to-credit (NTC) or underserved sectors. The availability of real-time and reliable data on borrowers, fuelled by increased mobile internet penetration, has been a major contributor to digital lending in India. Lockdowns and restrictions on social contact during the pandemic promoted further adoption of digital credit, even in tier 2 and tier 3 cities. Traditional banks and NBFCs, too, are jumping on the bandwagon of digital lending either through their native applications or partnering with fintechs. This can be ascertained by a survey conducted by RBI of representative Banks and NBFCs indicating a twelve-fold growth in digital lending volumes between 2017 and 2020, driven majorly by personal loans.