How the digital lending space expects to benefit from the Union Budget 2019

By Alok Mittal

As the wave of general elections gradually passes with the Modi government resuming power for the second time, the next big wave of Union Budget has begun. The fintech landscape is India is robustly evolving and has had a fair year so far, with key initiatives like the introduction of RBI sandbox to encourage fintech companies to survive and thrive in the ecosystem. But there is still a long way to go, with many more challenges that need immediate and effective addressal. For instance, even though PM Narendra Modi announced several measures aimed at MSMEs in November last year including better access to credit and reduction in the cost of borrowing etc., these measures are yet to achieve their full potential owing to penetration and adoption challenges that the traditional financial institutions face. Therefore, with Union Budget 2019-20 around the corner, here are the key expectations that fintech companies in the digital lending space have from the government in order to truly facilitate the backbone of the nation’s economy:

Mobilize and facilitate access to financial services

Low levels of financial inclusion remain one of the biggest factors concerning the country, both in terms of personal consumption as well as entrepreneurial endeavors. While initiatives like Digital India have been significantly scaling digitization, more policies and reforms need to be implemented. The government needs to boost digitalization of financial services further while encouraging and empowering the masses to digitize. Digital financial services should be mobilized and incentivized, while digital literacy needs to be improved. Better access along with incentivization will encourage more and more people hailing from different areas to adopt digital financial services, thereby driving true financial inclusion all across the country. Therefore, fintech players expect the government to mobilize better access to digital financial services and empower these companies to facilitate access to the masses as well as enterprises.

Extend credit guarantee schemes

Recently, the government has been emphasizing on and implementing upon building a supportive financial infrastructure for the growth and development of the MSME sector. For instance, Pradhan Mantri MUDRA Yojana, a wholly-owned subsidiary of SIDBI, has been aiming at reaching out to and addressing the funding needs of MSMEs. But at present, MUDRA has only been supporting banks, micro-finance institutions, and NBFCs. Since the penetration levels of these institutions remain relatively low in terms of credit facilitation to MSMEs in both urban as well as rural areas, these schemes are not able to achieve their full potential, rendering a substantial fraction of these low cost funds unused. This is where digital lending institutions can come to aid, driving better penetration and creating value for the underserved enterprises while simplifying the entire process. Therefore, the government is expected to extend credit to and allocate more money in the digital lending space, thereby ensuring a boost in access to credit for the SME and MSME sectors all over the country.

API-based access to data within government and banking domains

In the upcoming Union Budget, fintech companies in the digital lending space expect the government to open up API-based access to data within government and banking domains. This will not only bring about greater financial transparency, but will also help in expanding the reach of digital credit to a greater extent. Therefore, by making data accessible to fintech players in the digital lending space through a secured API, the government can significantly help in creating a more seamless and hassle-free credit process for MSMEs all over the country.

Simplify TDS and reduce GST rates

One of the biggest concerns of the digital lending space at present is the need for SMEs to pay TDS on their interest payments. This makes the repayment process complicated for SMEs to manage, thereby discouraging them from seeking business loans. Therefore, the digital lending space expects the government to simplify or eliminate the need for SMEs to pay TDS in the upcoming Union Budget. Moreover, fintech companies are expecting the government to consider reducing GST rates or implementing such measures in the Union Budget. A GST of 18% levied on services aiming at financial inclusion is bound to assert a huge burden, and therefore needs to be reformed. Further, by increasing the sales threshold for compulsory GST registration, the government can also help curtail a lot of difficulties that SMEs face.

The financial services domain is being continually disrupted by fintech companies in spaces such as payments, lending, revamping traditional banking, advisory, and insurance, etc. The government has gradually begun acknowledging the potential of fintech and is creating a conducive setting for these companies to thrive in the ecosystem. Amidst this, fintech companies expect the government to continue laying emphasis on creating a favourable environment through the Union Budget, thereby boosting the digital economy and driving true financial inclusion in India.

(Alok Mittal, CEO & Co-founder, Indifi Technologies)


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