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Business News/ Companies / Start-ups/  How fintech is revolutionizing startup funding in India

How fintech is revolutionizing startup funding in India

India has recognized 92,683 startups since the launch of the Startup India initiative, according to government statistics. While venture capitalists are a preferred source of funding for many, some startups rely on fintech lending to bootstrap their companies.

Venture capitalists have become a preferred source of funding for many startups. Premium
Venture capitalists have become a preferred source of funding for many startups.

The Department for Promotion of Industry and Internal Trade (DPIIT) has officially recognized 92,683 entities as startups as of February 28, 2023, since the launch of the Startup India initiative, according to government statistics.

These startups have been instrumental in introducing innovative products that leverage technology, developing health-focused FMCG (Fast Moving Consumer Goods) offerings, and conducting well-researched inventions to simplify day-to-day tasks. 

Like any business, startups require initial capital investment, and additional funds are often needed to sustain growth momentum or expand operations across wider geographical areas. Money acts as fuel to achieve the rapid progress that these startups aspire to, which is why the founders are constantly searching for ways to fund their companies. 

While venture capitalists have become a preferred source of funding for many, there are others who rely on various finance options to bootstrap their companies.

Balaji Jagannathan, Co-Founder & Director at elaborated that fintech lending leverages technology and digital solutions to streamline the loan application along with the repayment process has become a valuable resource for startups looking to bootstrap their businesses rather than seeking funding from venture capitalists. 

“Recurring auto-debit solutions have meanwhile emerged as an ideal method for ensuring timely payments. These solutions automatically deduct the installment amount on the due date, helping to avoid late fee charges," he said. 

The cofounder further talked about another innovative digital payment instrument called Single Block Multiple Debit which is available under the Unified Payments Interface (UPI) and allows borrowers to block the required payment amount and then deducted it on the due date.

Fintech can optimize the loan repayment experience for lenders and borrowers, fostering positive business creditworthiness and facilitating their growth, said Sadaf Sayeed, CEO of NBFC-MFI Muthoot Microfin. 

“During the forecast period (2022-2028), the Indian microfinance market is anticipated to experience a Compound Annual Growth Rate (CAGR) of 11.3%. This substantial growth is primarily attributed to the increasing number of microfinance organizations, which play a crucial role in eradicating poverty and improving the quality of life for underprivileged communities in developing regions," Sayeed added. 

Praveen Khanna, Vice President of Alliances informed that Indian startups raised a total of $3 billion in Q1 2023, down 75% from $12 Bn raised in Q1 2022, indicating the need for better cash flow and access to credit. 

“This startup funding can be alleviated via partnerships with fintech – these innovative financial technology companies have made a profound impact, with investments pouring in at unprecedented levels and can help in access to credit for cash-starved Indian startups. Fintech companies have technology-based analytics using alternative data which are an enhancement over the process for traditional financing options, making it more efficient for startups to secure loans and credit lines," Khanna said. 

Gaurav Rastogi, Founder and CEO at Kuvera, citing the World Bank report, said when it comes to access to credit, India is home to nearly 190 million unbanked individuals who are left out of mainstream financial services, according to the World Bank. 

“India presents a unique case of comparatively lower penetration of financial products/services coupled with the explosive adoption rate of fintech, making it one of the most attractive destinations for investments globally," he added. 

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Updated: 05 Jun 2023, 09:01 AM IST
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