Notwithstanding the slowdown now afflicting the Indian economy, a joint report by KPMG India and the Confederation of Indian Industry (CII) stated that start-ups, especially in the fintech segment, are emerging as growth drivers.According to the report, Fintech and start-ups fuelling India’s $5 tn economy, start-ups have disrupted old businesses across segments like finance, agriculture, education and health. In finance, particularly fintech companies, most of which are start-ups, have slowly begun filling in the gap between credit disbursement and demand as traditional banking institutions retreat in the face of high non-performing assets and a liquidity squeeze in the NBFC space. This has left fintech start-ups to service credit needs of the crucial MSME segment.
“Fintech companies are playing an important role by providing easy credit options to MSMEs,” the report said, noting that small businesses have historically struggled to gain credit from the traditional banking system: only six per cent of total credit goes to the sector. This segment is now being increasingly serviced by fintech start-ups who have adopted advanced technology like data analytics to determine creditworthiness of potential borrowers, leading to faster turnaround to disbursing loans to MSMEs.
This new credit channel is a crucial factor for a very job-heavy sector. “As per a recent survey by the CII, MSMEs have created additional jobs between 13.5 million and 14.9 million per annum over the last four years,” the report noted.
This activity has been spurred by large amounts of capital flowing into the start-up economy, in stark contrast to the troubles faced by the traditional banking space. KPMG analysts say the current slowdown has been caused in part by the NBFC crisis. “With liquidity being sucked out of the system there has been a near complete breakdown in the investment cycle... Traditional businesses that relied on banks for funding significant portions of their planned capex are holding further investments,” the report noted. However, “there has been no dearth of capital flowing into the start-up economy,” KPMG said.
The start-up economy has seen $7.67 billion flowing in in just three quarters of 2019. There were 21 fundings that crossed the $100-million mark, KPMG said. With this warchest, start-ups have emerged as major players, not only “sustaining but also giving a growth impetus to the overall economy”.