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To give a fillip to digital lending, Small Industries Development Bank of India (SIDBI) has put together a pilot scheme to extend financial assistance of up to ₹10 crore to new-age fintech non-banking finance companies (NBFCs) engaged in financing small businesses and other income-generating activities.
What are fintech NBFCs?
Fintech NBFCs are digital loan companies. They leverage information technology to provide fast and convenient access to funding. To be eligible for funding assistance, Reserve Bank of India-registered new-age fintech NBFCs have to meet prescribed parameters, including minimum capital risk-weighted assets ratio of 15 per cent; non-performing assets less than or equal to 4 per cent; minimum net-owned fund (NOF) of ₹20 crore and minimum asset size of ₹50 crore; and at least two audited annual reports, positive net worth and leverage ratio within 5:1.
SIDBI has set the exposure cap for lending to a single new-age fintech NBFC at 30 per cent of NOF of the new-age fintech NBFC, subject to maximum cap of ₹10 crore.
As per the scheme, new-age fintech NBFCs should hold in trust the underlying securities/ receivables on behalf of SIDBI.
The development bank will charge minimum upfront fee of 0.075 per cent to 0.25 per cent of the sanctioned assistance, plus applicable taxes.
SIDBI was set up in 1990 under an Act of Indian Parliament to act as the principal financial institution for promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector, as well as for co-ordination of functions of institutions engaged in similar activities.
Digital loan firms
In a speech in March, the RBI Governor Shaktikanta Das said that the central bank has granted licences and permitted seven purely digital loan companies (NBFCs) to commence operations.
Physical presence
Although they are purely digital players operating through mobile applications, the RBI has ensured that they have at least one physical presence for customers to reach out to in case of need, he added.
Financial Stability Board (FSB) defines fintech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.
According to the report of the working group on fintech and digital banking, some of the major fintech products and services currently used in the market place are peer-to-peer (P2P) lending platforms, crowd funding, block chain technology, distributed ledgers technology, e-aggregators, among others.
These fintech products are currently used in international finance, which bring together lenders and borrowers, seekers and providers of information with or without a nodal intermediation agency.
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