How expansion of DigiLocker will boost the credit availability to MSMEs?

Nirmala Sitharaman, the Union Finance Minister, broadened the range of Digilocker services during her budget statement today. According to FM, regulators and regulated firms would be formed utilising the DigiLocker service and Aadhaar as the underlying identity for reconciliation and updating of the identity and address of individuals kept by various government institutions.

FM said “A one stop solution for reconciliation and updating of identity and address of individuals maintained by various government agencies, regulators and regulated entities will be established using DigiLocker service and Aadhaar as foundational identity.”

She further added that “Fintech services in India have been facilitated by our digital public infrastructure including Aadhaar, PM Jan Dhan Yojana, Video KYC, India Stack and UPI. To enable more Fintech innovative services, the scope of documents available in DigiLocker for individuals will be expanded.”

“An Entity DigiLocker will be set up for use by MSMEs, large business and charitable trusts. This will be towards storing and sharing documents online securely, whenever needed, with various authorities, regulators, banks and other business entities,” said Nirmala Sitharaman today during Budget announcement.

Abhishant Pant, Founder, The Fintech Meetup and General Partner, YAN Angel Fund said “After the slow adoption of DigiLocker, expanding its scope on users and types of documents will significantly boost the consumer journey seamlessly over the top of digital public infrastructure. An agriculture accelerator fund and digital public infrastructure for agriculture could lead to the emergence of a new set of Agri-Fintechs, which has been restricted so far due to market constraints. Simplifying KYC by adopting a risk-based approach will ensure faster onboarding of consumers and deepen the journey of Digital India initiatives. A comprehensive review of existing regulations by the financial regulators through wider consultation with ecosystem players will further simplify, ease and reduce the cost of compliance. In addition, continued fiscal support to strengthen digital payments infrastructure will ensure continuity in the growth of digital payments in volume and value in the absence of merchant discount rate (MDR) in a few payment rails.”

Vikas Jain, CIO and Co-founder, Multipl (India’s first Save Now Buy Later platform) said “We are happy that the Union Budget has reduced the compliance burden by mandating that PAN be a common business identifier. Moves to empower SEBI to develop, regulate and enforce norms for education in the National Institute of securities markets will enhance financial inclusion in the country. The budget paves the way for more ease of doing business and will help drive the entrepreneurial spirit of the country. The Government’s resolve to keep fiscal deficit targets combined with RBI's efforts to bring inflation within tolerable limits will reassure investors and consolidate India’s position as an attractive investment destination. The start-up tax exemption for another year will help the sector grow, especially in a challenging macro climate. Focus on simplified KYC, Digi locker for businesses and National Data Governance Policy will reduce the compliance burden and provide data for research this helping start-ups focus on building great products. The revised tax slabs will result in higher disposable income, helping in better savings and additional spending, a win-win for the economy.”

Sashank Rishyasringa, Co-founder of axio said “We appreciate the Government's recognition of start-ups as India's growth engines. The tax benefits extended will offer entrepreneurs much respite given the current macroeconomic climate. The Government’s ongoing endeavour to build a robust digital public infrastructure and improve existing services such as the DigiLocker will enable FinTechs to continue innovating financial products. The access to anonymized data under the National Data Governance Policy, the establishment of the National Financial Information registry and the new, simplified approach for KYC will revolutionize how financial services are delivered to millions of under-served customers.”

Mr Ashwin Chawwla, Founder & Managing Director, Escrowpay said “The Indian government’s recent announcement to expand the use of DigiLocker for fintech companies has been met with widespread praise from the industry. The move, which will allow fintech companies to store financial documents securely in the digital locker without having to rely on paper documents, is seen as a major step forward in the digital revolution taking place in India. The expansion of DigiLocker for fintech companies is part of the government’s larger initiative to promote digital payments and financial inclusion. Fintech companies will now be able to store their customers’ documents such as KYC (Know Your Customer) documents, Aadhar cards, PAN cards, and bank account details securely in the digital locker. This will help fintech companies to provide a streamlined experience to their customers, while also ensuring that their data is secure and protected. The move is also seen as a major step forward in India’s move towards becoming a cashless economy. Fintech companies that rely on paper documents for their transactions will now be able to store their documents digitally, which will help to make digital payments more secure and efficient.”

Mr. Madhusudan Ekambaram, Co-Founder & CEO, KreditBee said “The Union Budget has provided a very futuristic outlook into the government's vision for the financial sector and the fintech industry. The budget's focus on digitization and financial inclusion through facilities like Aadhaar, PM Jan Dhan Yojana, Video KYC, India Stack and UPI will help Fintechs innovate more in their service offerings. It will support sectoral growth, ease access to credit and encourage the entry of new players in the industry. Simplification of KYC processes to be amenable as per evolving needs and adopting a risk based approach will ensure that resources are allocated in the most efficient ways based on priorities over processes. Further, provisions regarding boost to digital infrastructure especially towards expanding the scope of Digilocker will help enhance credit availability to micro segments by making credit evaluation and document verification easier for fintechs and other financial institutions. Lastly, the introduction of tax policies that favour the startup sector are also positive steps. Not only will it boost entrepreneurship in the country, but also provide an impetus to innovation and investment. Thus making this budget a step in the right direction for the fintech industry and the economy as a whole."

Krishnan Vishwanathan, Founder and Executive Director, RING said “The Union Budget 2023 is aligned with the expectations of the fintech sector and we are heartened by the developments. This showcases how far we have come as a country in achieving the goal of a truly digital India and laid out meaningful ways in which the industry can keep up the momentum. The 76% increase in UPI usage gives confidence to digital platforms like RING that consumers are open to the idea of using virtual platforms. This gives us the assurance that UPI on credit will also witness similar success among aspirational and growing middle-class Indian citizens. Emphasis on financial literacy will make more Indians, especially from the hinterland, adopt tech-based financial solutions and reduce the number of people that have limited access to them.”

“Another notable regulatory change that I believe will benefit the sector as a whole, is the call for the simplification of the Know Your Customer (KYC) framework. While the details of a ‘risk-based’ approach to KYC will have to be ironed out, the fact that this new regulation is expressly designed to ‘meet the needs of digital India’ is encouraging for all digital lending platforms. The new roles that Government-backed tools like Adhaar and DigiLocker will play would both simplify the operations of digital lending fintechs and also boost consumer confidence. The idea of having a unified repository of customer data for identity mapping maintained by agencies, regulators, and regulated entities is a great step in ensuring efficient verification and debt collection from customers. Further the focus on AI will help players like us to enhance customer experience by providing personalised service and breaking barriers of language and geography. In conclusion, the Union Budget 2023 presented a positive outlook for the fintech sector in India, with incremental steps to the established regulations that can be expected to help fintech players continue their expansion and build financial inclusivity in the country,” said Krishnan Vishwanathan.

Jaya Vaidhyanathan, CEO, BCT Digital said “The budget was an excellent opportunity for the Finance Minister to take advantage of India’s pole position globally, and she has done justice to it. With finances bolstered by recent oil gains related to events across Europe and clean PSB balance sheets, the government had decided to spend on infrastructure in a big way, while still maintaining the controlled fiscal deficit path. The focus on refining the banking and financial markets through technology-led initiatives, such as the National Financial Information Registry and unified KYC; replacing the tedious process of document submission with DigiLocker storage; result-based financing, and reforms to develop the municipal bond market will pave way for the maturity of our markets to global benchmarks. By recognizing Green growth as an important pillar in the budget, the FM has laid the path towards economic development that is sustainable and in line with global efforts to tackle climate change. Green growth includes initiatives such as the promotion of renewable energy sources and the adoption of more sustainable practices which in turn, will promote broader Environmental, Social and Governance (ESG) initiatives by companies. On the other hand, the rationalization of tax slabs, simplification of compliances for small businesses, and most importantly, the reduction in personal income taxes would put more money in the hands of the public, thereby boosting the economy after the pandemic-induced slowdown over the last couple of years.”

Akash Sinha, Co-founder & CEO, Cashfree Payments on Budget FY 23-24 on KYC/ MSME said “The Finance Minister has presented a distinctive set of measures in the Union Budget 2023-24 with a streamlined focus on rapid, holistic and inclusive economic growth. It is a well-crafted statement of intent, drawn from the success and learnings from the past with the potential to further enhance India’s growth prospects. Realising the crucial potential of digital infrastructure in the financial sector, the hon’ble FM has announced measures to increase the scope of DigiLocker services for individuals and MSMEs. This will certainly aid in enhancing the accessibility of financial services with higher convenience and simplified processes with robust security. It is also encouraging to see that the hon’ble FM has given due attention to compliance in the financial sector. A simplified KYC process, adopting a ‘risk-based’ approach as opposed to a ‘one size fits all’ outlook will ensure accurate and sophisticated verification as well as in-turn regulated operations in the financial services space. Highlighting the growth of digital payments and fiscal support for digital public infrastructure is also appreciable” as this further contributes to India’s digitisation efforts.”

Mayank Goyal, Founder and CEO, moneyHOP said “There have been some welcome moves announced to ensure ease of business for startups and MSMEs and the extension of the DigiLocker scheme can prove to be influential to boost digitalisation of business operations. Announcement around the National Data Governance Policy is a constructive step towards unlocking potential of new-age businesses by interpretation of data and allowing scale through targeted innovation. Growth of businesses is also bound to excel with the introduction of permitting acquisition financing by IFSC units of foreign banks, allowing FinTechs to propel by creating seamless customer experience avenues and deeper penetration. The New Tax Regime also has the potential of pumping back more disposable income to the end consumer which will be a welcome step to increase personal economic activities like consumption, tourism, lifestyle upgradation, etc creating growth avenues for many B2C new-age businesses. Lastly, the NFIR along with the Data Verification measures introduced in the budget should remove trepidation that still exists in Rural India for using Digital Payments and also across the country for digital forex payments.”

Pramod Kathuria, Founder & CEO, Easiloan said “Union budget 2023-24 reflects that the government is profoundly embraced the digital revolution in the fintech sector and promoting the use of digi locker for documentation. The collection and retrieval of relevant document for customer verification and identification is a key area we as Digital home loan marketplace Easiloan are looking to optimize. We are glad that the government’s new budget is a push in the same direction. Expansion of Digi locker services to the Fintech sector will be a great boost for individuals, banks and financial institutions to store and share data online in a secured and faster manner. Additionally, The decision of the government to set up 100 labs in engineering institutes for developing apps using 5G services will usher in new opportunities unlocking various possibilities.”

Mr Ashwin Chawwla, Founder & Managing Director, Escrowpay said “The Indian government’s recent announcement to expand the use of DigiLocker for fintech companies has been met with widespread praise from the industry. The move, which will allow fintech companies to store financial documents securely in the digital locker without having to rely on paper documents, is seen as a major step forward in the digital revolution taking place in India. The expansion of DigiLocker for fintech companies is part of the government’s larger initiative to promote digital payments and financial inclusion. Fintech companies will now be able to store their customers’ documents such as KYC (Know Your Customer) documents, Aadhar cards, PAN cards, and bank account details securely in the digital locker. This will help fintech companies to provide a streamlined experience to their customers, while also ensuring that their data is secure and protected. The move is also seen as a major step forward in India’s move towards becoming a cashless economy. Fintech companies that rely on paper documents for their transactions will now be able to store their documents digitally, which will help to make digital payments more secure and efficient.”

Mr Swapnil Jambhale, Co-founder and COO, Safexpay said “The Budget announcement on modification of KYC procedure, is a much needed move to simplify the digital spending and investment processes. It is imperative because the risk-return angle for customers undertaking KYC is crucial and different customers have different requirements. By switching from a one-size-fits-all strategy to a risk-based one, the KYC process will be made simpler. Additionally, it will push the financial sector's regulators to develop a KYC system that can fully support ‘Digital India's’ requirements. The continued fiscal support for digital public infrastructure in 2023-24, is a welcome move. To promote innovative fintech services, the scope of documents available in DigiLocker for individuals has been expanded. Entity DigiLocker will also be set up for businesses and MSMEs, which will help businesses streamline and securely store their official documents and the same can be shared with banks, regulators, authorities and other business entities when needed. The National Financial Information Registry has the potential to be a game changer in the coming months. It will facilitate efficient flow of credit, promote financial inclusion, and foster financial stability. We await the draft legislative framework on this to get better clarity on its use-cases. Also, the access to anonymized data under the national data governance strategy, will promote innovation and research by universities and start-ups.”