Fintech panel proposes cash flow based lending to MSMEs

The steering committee on Fintech related issues constituted by the Department of Economic Affairs of the ministry of finance has recommended that the Reserve Bank of India (RBI) may consider development of a 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.

The committee submitted its final report to union minister of finance and corporate affairs Nirmala Sitharaman in New Delhi on Monday.
The committee was constituted in pursuance to the announcement made by former finance minister Arun Jaitley in the budget for 2018-19. 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 focusing 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 report also identifies application areas and use cases in governance and financial services and suggests regulatory upgrades enabling fintech innovations.
It has also recommended that insurance companies and lending agencies to be encouraged to use latest equipments like drone and remote sensing technology for assessment of crop area, damage and location to support risk reduction in insurance/lending business.
Given the rapid pace at which technology is being adopted primarily by private sector financial services, the committee recommended  that the Department of Financial Services (DFS) work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks. Significant opportunities can be explored to increase the levels of automation using artificial intelligence (AI), cognitive analytics and machine learning in their back-end processes.
The committee has highlighted the positive impact of Fintech innovations on sectors such as agriculture and MSMEs. It has recommended that NABARD 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 recommends a special drive for modernisation and standardisation of land records by setting up a dedicated National Digital Land Records Mission based on a common National Land Records Standards with involvement of state land and registration departments, with a view to making available land ownership data on an online basis to financial institutions.
The committee also recommends that a comprehensive legal framework for consumer protection be put in place early, keeping in mind the rise of 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. Similarly, 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.
Further, an Inter-Ministerial Steering Committee will be set up on fintech applications in the Department of Economic Affairs (DEA), ministry of finance, 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. While the Inter-Regulatory Technical Group (IRTG) set up under the FSDC will be the forum of inter-regulatory coordination on Fintech.
Following the deliberations of the committee it was considered necessary to have a nodal agency to coordinate developments across ministries and regulators in the area of Fintech. 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 relevant ministries.
The steering committee, which submitted the report, is headed by secretary, Department of Economic Affairs. The other members of the committee are secretary (MeitY); secretary (DFS); secretary (MSME); chairperson (CBIC); CEO (UIDAI); deputy governor (RBI); executive director (Sebi); CEO, Invest India with additional secretary (Investment), DEA as the convener of the panel.