By BN Mishra

FinTech industry It is expected to disrupt the financial services industry. With innovative technology, these new-age firms aim to offer more accessible financial products, low-cost delivery and payment solutions.

But disruption cannot come at the expense of regulation. Recently Reserved Bank of India‘s precise and targeted actions against certain FinTech companies have caused some discontent in the industry. While affected firms are eager to address concerns and comply with regulations, some industry representatives worry that this overzealous approach could hinder the growth of the fledgling FinTech sector.

Before getting into the details RBIFor the actions of , let us first thank this year’s Nobel Prize winners in Economics (Daron Acemoglu, James A. Robinson, and Simon Johnson) for their work on how institutions shape economic development. In today’s highly polarized world, where development economics is often driven by voter shares and subsidies are often equated with freebies, these economists have once again underlined the critical role that social institutions play in a country’s economic growth. Not only are institutions expected to be free, fair, and prudent, but because their vision is long-term and free from political maneuvering, their role can at times eclipse that of government. Nobel laureates divided institutions into two types: inclusive institutions that enforce property rights, protect democracy, limit corruption, and promote economic growth and development, and extractive institutions that concentrate power and restrict political freedom.

Inside IndiaThe debate on the independence of institutions has gained considerable importance in the last decade. While some claims, including those from employee associations, require introspection, many lack substantial basis. If India aims to be 30 trillion dollars economyIt is very important to protect, nurture and further strengthen our independent institutions. They serve as lighthouses that guide the way forward and warn of possible crises.

And that is exactly what the RBI is doing, citing supervisory concerns about loan pricing practices. In one of the cases, the RBI stated that the action was based on significant supervisory concerns observed in the pricing policies of these companies in terms of weighted average lending rates (WALR) and the difference in interest charged on their cost of funds. It was determined that it was excessive and not in compliance with the legislation. This is where the real concern lies. Some of these new age companies are in a rush to take over Sunday share neglects basic regulatory compliances. Such an approach is not only risky for the companies themselves, but also poses a threat to the entire ecosystem. In recent times, the regulator has repeatedly introduced measures to rein in the fast-growing personal loan and gold loan segments.

According to industry estimates, the Indian FinTech Industry is estimated to be around $110 billion and is expected to reach an impressive figure of around $420 billion by 2029, with a cumulative growth rate of 31% annually. While promoting the industry, the government has also made a case for appointing key contact point or nodal officer by Fintech companies to liaise with law enforcement and monitor data breaches in real-time. In fact, native transaction monitoring and An –Money India anti-fraud and crime laundering (AML) system that can be developed by fintech companies. But before this happens, the FinTech industry needs to strengthen self-regulation to prevent individual issues from affecting the entire industry.

A promising start has been made with the Fintech Consumer Empowerment Association (FACE) being allowed to establish a self-regulatory organization (SRO) for the sector. More organizations are expected to follow this practice. The RBI has already stated that SRO-FT (FinTech) will operate “objectively, with credibility and responsibility” under its supervision and ensure the “healthy and sustainable development” of the sector.

This brings us back to this year’s Nobel laureates, who have shown that inclusive institutions have a long-term positive impact on economic well-being. Germany and Japan, II. Their success stories, despite major defeats and near-occupation after World War II, are proof of this idea. Both countries were aware of the challenges they faced and supported the development of independent institutions within their political frameworks. They have also made significant investments in skills development and placed great emphasis on technological innovation and research.

The FinTech industry will benefit greatly if it supports independent institutions such as these SROs, allowing them to develop as innovation hubs. The opportunity is huge; More than 530 million Jan Dhan accounts have an average balance of Rs 4,000, waiting to be used. Penetration levels in the insurance sector also leave ample room for growth. FinTechs should not miss this opportunity by focusing solely on leading the competition. A well-regulated sector will benefit all stakeholders and contribute to the vision of Viksit Bharat.

About the author: BN Mishra – Consultant, Indian Banks Association

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