In its final report placed before the Finance Minister this month, the Steering Committee on Fintech has suggested a host of measures to advance the cause of financial inclusion through fintech adoption, including incentivising new business models and start-ups working in the sector.
The committee had been tasked with examining different measures to make fintech-related regulations more flexible and generate enhanced entrepreneurship in the area. According to the committee’s report, there are currently many regulatory restrictions which may require a re-examination as the nation shifts towards adopting a highly digitised transaction infrastructure.
“For instance, financial services companies are restricted from outsourcing activities to fintech companies in the insurance sector, as well as restrictions on offering any other services apart from insurance. The Committee recommends that regulators should consider permitting new or innovative business models that can reduce costs, enable choices for consumers, while preventing conflicts of interest,” it noted.
To further innovation in business models in the financial sector, the panel also gave a thumbs up to regulatory sandboxes (RS) and laboratories along the lines of the one recently proposed by the Reserve Bank. According to the report, many economies like the United Kingdom, Singapore, Canada and Thailand have set up regulatory sandboxes as early as 2015 to enable financial sector innovations.
“The Committee recommends that regulators should introduce mechanisms, such as regulatory sandboxes and laboratories, that enable learning and adaptation of regulatory responses which can play an important role, without further delay, in order to maintain India’s competitive edge,” it said.
In fact, two sector regulators -- Insurance Regulatory and Development Authority of India (IRDAI) and the RBI -- have already notified guidelines for regulatory sandboxes on July 26 and August 13. While the IRDAI RS has invited applications from aspiring participants from September 15 to October 14, the RBI is yet to notify dates for applications.
Meanwhile, the committee also noted that many new-age digital lending companies (mostly start-ups) find it difficult to meet the criteria for lending partners set for the MUDRA scheme. “For many new-age start-up fintech companies (who are registered with RBI as an NBFC) the above conditions are too stringent,” it noted, going on to recommend that the MUDRA program needs to open credit supply channels through non-banking fintech credit companies, besides mandating use of fintech by all players.
With fintech-driven measures to achieve full financial inclusion finding favour, the committee observed that potential offered by the sector, especially for MSMEs and agriculture firms, should lead government departments to explore enhancing capacities with fintech too by setting up task forces. “Ministries and departments with potential for fintech use cases, especially MSME, DFS, Agriculture, HRD, MoRD, DOLR, MoHUA, may set up ministry level fintech working groups to identify, screen and implement potential use cases for fintech in collaboration with start-ups and service providers,” it recommended.
