Budget hopes for FinTech: Boost credit flow for MSMEs

All eyes will be on Finance Minister Nirmala Sitharaman as she unveils the Union Budget 2022 on February 1. While the sector has been vying to soften the blow from the pandemic with newer models of lending and technological breakthroughs, Budget 2022 can set the right precedent to empower the economy. It is crucial, however, for the government to balance different provisions supporting economic growth against consolidating its finances.

Here are our expectations from the Union Budget 2022:

Boost credit to MSMEs & startups: With nearly 95% of India’s businesses being micro-scale enterprises, the sector is reeling to access funds and credit. Union Budget 2022, thus, should make a priority to enable MSMEs and startups to access funds and simplify taxation.

Additionally, the Finance Minister can introduce some measures like expediting approvals, streamlining compliance norms for the ease of doing business, and encouraging and incentivising tech adoption. Introducing more incubation programs, regulatory sandboxes should also be a priority to boost the entrepreneurial wave in the country. This will lead to more job creation and relieve the metros of the pressure of rapid and rampant urbanisation.

Fast track Account Aggregator and OCEN: Over half a billion Indians are underbanked and need to become entrenched in the mainstream financial system. The FM can accelerate its financial inclusion and digitisation agendas by supporting the Account Aggregator and OCEN initiatives as they will help consumers and SMEs generate relevant data for lenders and in turn enable easier access to cheaper credit. These can also democratise credit by encouraging cash flow based lending instead of asset based loans.

Incentivise debt instruments to MSMEs & startups: In the absence of bank funding, debt capital providers for MSMEs & startups should be incentivised by the government. For instance, while banks & AAA rated companies can raise debt at 5-6%, A-rated companies or lower can secure debt at 10% or higher. NBFCs and FinTech in the space of MSME & digital lending need adequate debt capital to penetrate underbanked segments and create millions of jobs in the process. The Finance Minister can encourage a new generation of capital providers to fill the yawning working capital gap faced by FinTechs and impact focused lenders by starting tax incentives on the income earned from such debt products similar to the capital gains tax benefits given to equity investors.

Regulate cryptocurrencies: Crores of investors are rushing into crypto trading in the search of making a quick buck. Most wouldn’t have a sense of the fundamentals of these assets. The government should quickly regulate this sector to ensure that India’s capital is allocated for secure and productive purposes. Regulations in the field would encourage young investors who are smitten by crypto to be more careful with their investments. Furthermore, the government also needs to reach a consensus on the taxation of crypto. How to classify such earning, TDS/TCS and GST deductions etc.

In a nutshell, the hopes and expectations are surmounting for the upcoming budget announcement. The FinTech & credit sectors are hopeful that the latest announcements would take care of pain points and empower R&D and tech innovation, taking the organised lending to newer segments and geographies.

(The writer is Founder, Credit Fair)


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