Fintech to the aid of MSMEs: Cash-based financing, e-invoicing for GST could soon be reality

In a series of recommendations made to the finance minister Nirmala Sitharaman on Monday to solve issues around the usage and adoption of financial technology in various areas, the Steering Committee on Fintech said that with respect to MSMEs, the Reserve Bank of India may look at having a cash-flow based financing for MSMEs, developing an open-API MSME stack based on TReDS data that is validated by GSTN along with a standardised and trusted e-invoice infrastructure designed around TREDS-GSTN integration, according to a statement by the ministry. The recommendations were made by the committee while highlighting the positive impact of fintech innovations on MSME and agriculture sectors — the top two sectors in terms of employment generation in India.


Submitting its final report to the ministry, the committee, which was set up last year, also recommended that insurance companies and lending agencies should be encouraged to use drones and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.


The report also recommended National Bank for Agriculture and Rural Development (NABARD) for creation of a credit registry for farmers focusing on the use of fintech along with core banking solutions (CBS) by agri-financial institutions included Cooperative societies. It also sought modernisation and standardisation of land records by having a dedicated National Digital Land Records Mission based on a common National Land Records Standards with the involvement of State Land and Registration departments. The recommendation was made from the perspective of making data on land ownership available online to financial institutions.


The Steering Committee also suggested setting up of a legal framework catering to consumer protection with the growth of fintech and digital services in India. The report said that post deliberations of the Committee it was considered necessary to have a nodal agency to coordinate developments across Ministries and Regulators in the area of Fintech. A separate team on digital economy and fintech is also being set up in the Investment Division of the Department of Economic Affairs in the ministry for coordination on fintech with relevant ministries.