Union Budget 2024-25: Key Expectations of Fintech, MSMEs and BFSI Sectors

With the re-election of the NDA government at the centre, there is widespread anticipation towards the upcoming budget to be presented in the parliament by the Finance Minister Mrs Nirmala Sitharaman on July 23rd. As India moves forward towards its digital mission, the Fintech industry is increasingly becoming a key enabler in driving forth the agenda for financial Inclusion by devising innovations for the underserved. Industry leaders are eagerly looking forward to what the budget will have to offer in terms of new policies and frameworks being introduced to enhance the growth story of the sector further. Here is our take on what are the key expectations of the industry in terms of outlook for the sector: 

Establishing a Unified Digital Lending Infrastructure

Similar to the role played by NPCI for Digital Payments, there is a need to have a centralized entity working as a facilitator to streamline Digital Lending in the country. We expect that the introduction of such an entity could streamline the integrations between Banks, NBFCs and fintech entities to ensure the complexities of digital lending with frameworks such as Co-Lending, LSP framework etc are serviced efficiently. Moreover this entity could also be a key contributor in establishing structures that streamline the heavily regulated landscape of digital lending by keeping a check on DLG compliance in the industry.

Bridging the MSME Credit Gap through Digital Public Infrastructure & MSME-focused policies

 The MSME sector is one of the largest contributors to our nation’s economy. The sector remains largely untapped due to limited serviceability due to the sector's inherent unorganised nature. This has led to a significant credit gap and we believe that the budget could introduce policies built around scaling up the Digital Public Infrastructure focused on MSMEs. Just like Digilocker, there is a significant need for policies to accelerate the framework for Entity Lockers, introduced earlier to streamline KYC requirements for MSME lending, resulting in reduced fraud and faster loan approvals. Moreover, there is also a need for scaling up initiatives such as the Public Tech Platform for Frictionless Credit introduced by the Reserve Bank Innovation Hub (RBIH). This initiative focuses on building an open network driven by APIs, and aggregated data from multiple sources, to streamline MSME credit. An expanded scope for such an initiative could be introduced, significantly impacting the robustness of MSME Lending decisions. Lastly, there could be enhanced budget allocations to schemes such as Pradhan Mantri Mudra Yojana, which aims to provide small-ticket loans (up to 10L) to the MSME sector. Moreover, the budget can also expand the allocations towards Credit Guarantee Schemes aimed towards MSMEs, which provides increased comfort to Banks, NBFCs and Fintechs to provide their credit offerings. 

Streamlining Business Payments through a Dedicated B2B Payments Framework

While retail transactions have largely been streamlined with UPI, there still exists a gap in having a framework to streamline large-ticket B2B transactions to meet the requirements of modern businesses. B2B payments still rely on NEFT and RTGS, and a framework needs to be developed that would integrate collections, invoicing and taxation needs of the businesses along with transaction fulfilment. The introduction of such a framework could largely streamline transactions and cash-flow management at scale and contribute to improved efficiency for businesses.

Providing Regulatory Support to B2C Fintechs

B2C Fintechs have recently faced many regulatory hurdles around their growth, especially through measures imposed around their Banking partnerships. To address this the budget could build provisions for special licenses or fast-tracked licenses for such B2C Fintechs, which would put them under the regulatory oversight of RBI and also build more trust within their customer base towards their offerings. The introduction of such provisions could have a key impact on fostering innovations and ensuring these platforms scale under a compliant environment.

Measures to fast-track the adoption of Account Aggregator

As account aggregators are increasingly being used to streamline credit decisions in the ecosystem digitally, the speed of uptake of the framework by Regulated Entities that function as the data providers (Financial Information Providers) still remains on the slower side. Provisions mandating the adoption of Account Aggregators could significantly speed up this process of uptake, directly impacting financial inclusion and data-driven decisions in the industry.

Standardization of Regulatory Requirements for Digital and Non-Digital Lending

There is a need to ensure that regulatory oversight remains consistent across the entire Lending domain, for both digital and non-digital lending. While digital lending faces strong regulatory oversight through a lot of specific guidelines, provisions need to be introduced to ensure Non-Digital Lending also complies with privacy and data protection standards, at par with Digital Lending, enhancing overall trust in the ecosystem

GST and Income tax reforms to increase insurance penetration

 When it comes to insurance, India remains widely untapped with a majority of the population being uninsured or underinsured. As the ecosystem becomes more financially literate towards the benefits of insurance, the industry is also expecting a relaxation on the GST charged on their offerings from 18% in the current scenario. This would lower the initial cost of purchase for the end consumers and increase the affinity for these products. This change would in turn provide more growth opportunities to the Insurtech companies working tirelessly on the agenda of increasing insurance penetration in the country. As demand for insurance increases Insurtech companies offering Insurance-in-a-Box solutions could tap into the growth opportunities to service use cases such as embedded insurance offerings through the ecosystem participants

Fostering a collaborative ecosystem

With API-Based banking gaining traction, there is a continuous surge in use cases being built around bank-fintech partnerships. While a lot of work has been put into building a collaborative ecosystem, the fintech industry anticipates more policies being introduced that would enhance synergies between Banks, NBFCs, Fintechs and our Digital Public Infrastructure. The budget could introduce policies that allow fintech to further innovate through budget allocations for R&D around cutting-edge technologies such as AI, Blockchain etc. to drive use cases around credit, investments and savings. Additionally, fostering collaborations through enhanced scope for frameworks such as Regulatory Sandbox will go a long way in building a collaborative ecosystem.

The Road Ahead

To conclude, the road ahead post-budget seems very exciting to say the least. We believe the budget will heavily focus on driving the agenda of financial inclusion, by introducing policy changes that support collaboration and technological innovations while keeping the end-consumers interests at heart. The Fintech industry is well positioned to adapt to these changes and contribute towards the nation’s mission of Digital India, as well as economic growth

(Author is Founder at The Digital Fifth. Views expressed here are personal)