The Indian government has been pushing for revolutionising the fintech industry through initiatives such as the regulatory sandbox. Another step is the recommendation from a steering committee on fintech related issues constituted by the ministry of finance, which submitted its report to finance minister Nirmala Sitharaman on Monday.
The report suggests a comprehensive legal framework to protect consumers of digital services, as recommended by the steering committee appointed in March 2018.
The committee was constituted in pursuance to the announcement made by former union minister of finance and corporate affairs, the late Arun Jaitley in his budget speech last year, “Use of fintech in financing space will help the growth of MSMEs. A group in the ministry of finance is examining the policy and institutional development measures needed for creating the right environment for fintech companies to grow in India,” he had said.
The committee is headed by the economic affairs secretary also includes secretary (MeitY); secretary (DFS); secretary (MSME); chairperson of CBIC; CEO of UIDAI; the RBI deputy governor, SEBI executive director, Invest India CEO and additional secretary (Investment), DEA as the convener of the panel.
The report outlines the current landscape in the fintech space globally and in India, studies the various issues relating to its development and makes recommendations focussing on how fintech can be leveraged to enhance financial inclusion of MSMEs with a view to making fintech related regulations more flexible and generate enhanced entrepreneurship.
The committee report also identifies application areas and use cases in governance and financial services and suggests regulatory upgrades enabling fintech innovations.
Here are some other key points:
- RBI may consider the development of cash-flow-based financing for MSMEs, development of an open-API MSME stack based on TReDS data validated by GSTN, and a standardised and trusted e-invoice infrastructure designed around TREDS-GSTN integration.
- Insurance companies and lending agencies to be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
- The committee highlighted the positive impact of fintech innovations in sectors such as agriculture and MSMEs. It has recommended NABARD to take immediate steps to create a credit registry for farmers with special thrust for use of fintech along with core banking solutions (CBS) by agri-financial institutions, including cooperative societies.
- The committee also recommended a comprehensive legal framework for consumer protection for fintech and digital services.
- It has also recommended adoption of regulation technology (or regtech) by all financial sector regulators to develop standards and facilitate adoption by financial sector service providers to adopt use-cases making compliance with regulations easier, quicker and effective.
- It has also recommended that financial sector regulators develop an institutional framework for specific use-cases of supervisory technology (or suptech), testing, deployment, monitoring and evaluation.
- A dedicated team on digital economy and fintech is being set up in the investment division, department of economic affairs, ministry of finance for coordination on fintech with other relevant ministries.
Further, an inter-ministerial steering committee will be set up on fintech applications in the department of economic affairs to continue to carry on the tasks of implementing this report, including exploring and suggesting the potential applications in government financial processes and applications, particularly accounting and asset management, welfare services, taxation, and handling citizen grievances.
The other recommendations in detail can be checked here.