SIDBI Launched Pilot Scheme for FinTech NBFCs to Promote Digital Lending

Soniya Khanna

06 Jul, 2023

FinTech NBFCs are companies that make use of the latest technologies to provide Digital Lending. SIDBI launched a scheme to promote digital lending. The Small Industries Development Bank of India {SIDBI} has launched a pilot scheme intending to extend/increase funding amount up to Rs. 10 crores for FinTech Non-Banking Financial Company. SIDBI issued this scheme in the circular that came out on 8 May 2019 namely, Scheme for Assistance to New Age FinTech NBFCs.

What is Digital Lending?

Lending is simply an act of giving credit in any means such as loan to the borrower. The borrower repays the money after the specified period, including the interest rate amount imposed by the lender. Digital lending is the process where all these actions take place on the digital platform by paperless or other electronic means.

What is FinTech NBFC?

FinTech NBFCs are the type of companies that use technology to provide Digital Lending. The FinTech NBFCs registered with Reserve Bank of India to be eligible for the funding assistance should meet the prescribed parameters. These parameters are;

• They should have a minimum capital risk-weighted asset ratio of 15% and
• Their non-performing assets should be less than or equal to 4%
• They should have a minimum net-owned fund {NOF} of Rs. 20 crores
• The minimum asset size of Rs. 50 crores
• At least two audited annual report
• And positive net worth & leverage ratio of 5:1 or less

We can also say FinTech NBFCs are companies that give digital loans. These companies are the lending platform that helps consumers avail credit facilities from them. They make use of technology to provide fast and provide consumers with suitable sources of funding.

Suggested Reads: NBFCs Leveraging Fintech to Build a Customer-Centric Business Model

What Role the do DLAI play in the Digital Lending Industry?

Digital Lenders Association of India {DLAI} was set up in November 2016. The primary purpose of this association is to bring together all Digital Lenders and associated players under one roof and establish a union to help them grow.

The primary goals of DLAI are;

• To provide support for learning and development of digital lending industry
• To advise, represent and consolidate the efforts made by the digital lending industry
• They conduct various workshops and events to educate their member about the latest happenings in the associated sector
• They also have constituted a Digital Policy Committee to help grow the industry
• DLAI work in association with regulatory bodies such as MeITY, NPCI, RBI, etc. to formulate policies to help develop the digital lending industry
• Furthermore, they have formed a Code of Ethics that every member need to sign and follow

Read our article:Advancement of Digital Lending in India

Overview of SIDBI Scheme to Promote Digital Lending

SIDBI was founded on 2 April 1990 under the Act of Indian Parliament. The formulation of SIDBI was to promote, finance, and develop Micro, Small and Medium enterprises {MSME}. They also look upon the co-ordination of the functions of other institutions engaged in similar activities.

Scheme for Assistance to New Age FinTech NBFCs is a scheme introduced on a pilot basis in the circular that came out on 8 May 2019. The SIDBI has designed a scheme keeping in mind the recommendations of the working group on FinTech and Digital Banking. They increased the financial assistance to new-age NBFCs which are registered as Investment and Credit Company {ICC} with the Reserve Bank of India. The regulations of this scheme apply to the New Age Fin-Tech NBFCs that are involved in financing the small businesses and other income-generating activities. It is as per the rules of the Micro, Small and Medium Enterprises {MSMEs} defined under the MSMED Act, 2006. The amount proposed for extension of the financial assistance is Rs. 10 Crores. The details of this scheme as provided in the Annexure are as follows;

Download now full Annexure.

How this Scheme Help Promote Digital Lending?

FinTech NBFCs are companies that provide a digital loan. This scheme can help FinTech NBFCs to promote digital lending. Lenders generally use the traditional method for lending money even in today’s world/modern times.  They consider the digital way less trustworthy.

FinTech NBFCs work in developing technologies/platforms that are safe to use for lenders to lend credits to the borrowers. For doing that they need funding. The Scheme for Assistance to New Age Fin-Tech NBFCs is a scheme specially designed for FinTech NBFCs that are registered as investment & Credit Company {ICC}. It helps them to extend their financial assistance. Henceforth, this scheme can help these companies develop better technologies which ultimately will promote Digital modes of lending.

To Conclude

FinTech NBFCs are digital loans providing company. They develop technologies to provide fast and secure access to credits for consumers or borrowers. The SIDBI^[1] has extended the financial assistance up to Rs. 10 crores for these companies. The RBI registered FinTech NBFCs should meet the prescribed parameters that to avail of economic backing.

Read our article:NBFC Fintech Model – A Scalable and Profitable Business Model