The discussions are being led by the Indian Software Products Industry Roundtable (ISPIRT), a think tank for the Indian software products industry, they said, asking not to be named.
So far, PMMY loans have been extended by all public sector banks, regional rural banks (RRBs), cooperative banks, private sector banks, foreign banks, micro finance institutions and non-banking finance companies. Fintech companies have not been involved yet.
“A month back, there was a closed door meeting with officials of the ministry of information technology and Mudra mission. Fintech companies are seeking participation under the PMMY through ways which will take Digital India mission a step further," one of the people mentioned above said, declining to be named as the discussions are still on. He did not specify the date on which the meeting took place. While some fintech firms are keen on direct loan disbursal under the PMMY, others are looking to offer their digital expertise and platform to acquire new customers and offer digital services.
“Some fintech firms are lending to micro, small and medium enterprises (MSME) and most of the loans given out would qualify as priority sector lending. Involvement of such firms will further financial inclusion. ISPIRT is in conversation with the government regarding this," said the second of the three people, also declining to be named.
ISPIRT spokesperson Praveen Hari declined to comment. “I am neither a fintech founder nor a government representative and the best would be to reach out to the fintech founders or MUDRA/SIDBI public relations teams and they may be well equipped to provide you more information," he said.
Manufacturing enterprises are defined in terms of investment in plant and machinery under Micro, Small and Medium Enterprises Development Act, 2006. Bank loans up to Rs5 crore per unit to Micro and Small Enterprises and Rs10 crore to Medium Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006 are eligible for classification under priority sector, according to the Reserve Bank of India.
According to the first person cited above, fintech firms can offer digital services such as e-KYC, e-signature and credit profiling among others to the Mudra lending institutions (MLIs) as well.
“A lot of fintech firms have capabilities to acquire customers eligible for PMMY in niche segments where the existing MLIs like banks and NBFCs cannot reach," he said.
Mudra officials are again going to hold discussions with fintech firms to evaluate their participation under the scheme this week. “Small Industries Development Bank of India (SIDBI) is organizing a conference next week where discussions with fintech firms will also be held. After considering how these firms can contribute towards the scheme, Mudra will look into the modalities of PMMY and launch a separate scheme for the fintech participants," the third person said, requesting anonymity. An email sent to Mudra was not answered.
Mudra has been set up as a subsidiary of SIDBI by the government for development and refinancing micro units enterprises. Its purpose is to provide funding to the non-corporate small business sector through various ‘last mile financial institutions’ like banks, NBFCs and MFIs.
Announced by the finance minister in the 2015-16 budget, Mudra under the aegis of PMMY has already launched schemes like ‘Shishu’, ‘Kishor’ and ‘Tarun’.
Under Shishu, refinancing is provided for loans up to Rs50,000. Kishor offers refinancing for loans above Rs50,000 up to Rs5 lakh whereas, Tarun provides refinancing for loans above Rs5 lakh up to Rs10 lakh. Mudra also offers services like credit guarantee for micro units and securitization of loan assets against micro enterprise portfolios.
The move to allow fintech to participate under Mudra will help them access funds from banks. “Most fintech lenders are in need of debt funding. Banks lend only after they are sure of the profitability of the business. Since most of these firms are still in their early stages and need to prove their business model, they find it difficult to get bank funding," said Jindal Haria, associate director—financial institutions, at India Ratings and Research, a credit rating firm. If Mudra funding is available to the fintech lenders, it could solve a part of their funding problems, he added.
Even though fintech firms may help in reaching last mile customers, analysts say the objective of financial inclusion may get diluted due to the high interest rates charged by fintech lenders.
“The objective of Mudra is financial inclusion. While PMMY can use the digital platform to reach the last mile, they will have to consider the interest rates charged by the fintech lenders, which are high, to ensure that the goal of financial inclusion does not get sidelined," Haria said.