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Sophisticated Investors: Harming Fintech Lending Platforms?

Recent times have observed commercial entrenchment of the online lending platforms within erstwhile secure positions of the banking institution by strategizing the networking initiatives with investors who are willing to back them so.

A major problem persists for the peer-peer networks, commonly known as online lending platforms, and it is the manipulation of the scenarios by informed investors with advanced methodologies involving advanced tools that screen and select desired loans with the lowest default rates, often leaving leftovers of unwanted lending options with less experienced investors, thereby making the less experienced and less informed investors less inclined to continue the usage of the platform.

Insider knowledge portrays disbursement of less than 100 Cr of disbursement an annum for the P2P platforms whose magnitude falters before INR 2 Lakh Cr disbursement achieved by NBFCs. The difference in the magnitude often reflects and dictates the enthusiasm of the investors and the reality which is reflected in the investment as their approach is not bearish, but not quite bullish as well.

Most P2P platforms are at the seed investment stages and are fast losing steam in spite of the newer socio-economic trend of loans inferring heavy consumerism which ranges from purchasing high-end gadgets or fulfilling the modern-day goals as dictated by the pop culture.

However, the disbursement of the loans is not contingent upon the consumerist dreams of the individual but around a complex web of requirements ranging from the borrower’s profile, credit score and the fears of the Central bank often puts regulatory hindrance against any backdrop of freeloading loans much likely to prevent any credit crisis.

Such issues become important to address against the popularity and appeal of such websites, lest it becomes a contest to prove the best methods to avail such loans and reduce the effectiveness of value provided to the consumer through the digitization of such services.

The Evolving Sociology Of Availing Loans

The sociological nature of the Indian investors debars them from initiating any risky business proposition, thereby it becomes extremely important to identify and observe the profile of the loan applicants to track the safety of the loans, and such identification is diligently done where profitable venture can be availed.

Such analysis is done only through the consent of the loan applicant to avail the data, they determine a score of a certain ball mark value about the safety of the loan, and after such scoring, the interest rates are conferred upon the graded applicant.

The significant departure of the individual from the model of the traditional bank is marked not only by the choice that the applicant has to choose the loans that they want to avail of but the data they want to reveal to the lenders as well, the traditional model followed a bit more ‘hands-on’ approach, against the newer consent-based system.

This shift to a combination of automation and consent is fast rendering the traditional model less lucrative to the applicants, as the basic notion of favoring bias and issue of privacy exercised against a range of monetary value can even lead the investors to accept a different set of terms of the loan.

The Regulatory Vision Behind The Loans

Not all ventures can be profitable and thereby such losses in the context can be registered as a loss of capital. The lender should have the exercisable option of setting the loan off or enforcing claims against it extendable to a time range to offset the capital loss in a wider and smaller frame.

Introducing rebates for such P2P firms can be delivered in form of small or medium scale enterprises and embedded within the statutory and the regulatory behavior towards such sector through the annual budget, leading to more opportunities to increase profitability, lucrative nature of the business, and thereby attracting more investment by the time.

Such temporary solaces should be exacerbated by permanent solutions exercisable through a shift in the regulatory and the statutory base dealing with P2P, such efforts can be encouraged by removing the barriers and linking the channels of cash such as the Mudra Bank, to fund such technological venture in a position directly against the equity of the firm involved through modern or mezzanine financing.

Conclusion

Temporary relief paired with regulatory easing effectuates small changes to the overall structure of the society that will go a long way in financing the open society and its functioning. It is only a proponent of time before the seeds of economic development can be properly availed against the attribute of the Indian society as a young and a risk-taking one.

The newly born fintech industry needs institutional support through temporary and revision of pre-existing permanent mechanisms to ensure compatibility and, to ensure efficient state and asset building it becomes imperative for the government to take actions in micro-structures of the economy provide effective and conducive conditions for the emergence of institutions of national importance.

The startup founder should not debase their risk-taking appetite and the agility that would only be unique to the younger companies.

Tags: lending platforms, sophisticated investors, fintech platforms, fintech lending, fintech industry, lending options, fintech market, fintech lending platforms

Personal Finance: The Changing Times of Saving and Spending

In the new world, suddenly income has vanished, reduced, or settled at an extremely meagre amount leading to new risks. The risks have led to new dimensions of saving and spending that represent a forgotten luxury. As we switch from fear to a phase of gradual restart and hope for recovery, the questions about personal finances after Covid-19 are stark.

The pandemic has gone a bit too tough on some families while it was easier to sail through for the fortunate. The pillars of income, spending, saving, and investing for finance have undergone a drastic change as a direct outcome.

Risk has been the driving factor affecting income. Millions of livelihoods have been wiped out by the pandemic. Millions who are left with no employment have faced the primary brunt of the lockdown. Many employers who funded the first month of pay thereafter turned reluctant to extend the benevolence.

With the economic activities coming to a jerking halt, there is no work and no pay; with families surviving upon the skimpy amount of savings, they had. Many have lent a hand on loans and pledge to endure through these mellow times.

Many significant monthly income earners, many have been sitting without payment or have settled with a significant pay cut in the hope to hold on to their jobs. Many have been left unsure about how the work from the home situation would extend overtime and whack upon their monthly wages. Those who ran businesses have no income. Stocks remain unsold, bills are unpaid, and there is no revenue with no buyers. From big to small, all businesses have come to an unbelievable pause. 

In this new world, thus across segments income has evaporated largely. Keeping the job and hunkering down is the best possible we are looking at. This customarily means that demand for credit will increase sooner or later. There is a high probability of loans being unsecured, or against assets accumulated, but as the liquidity reserves dry up, loans will move up.

Banks and NBFCs have enough liquidity to be reasonably expected to provide short-time finance. However, without economic activity for long, they cannot go too far either. This is why the lack of government spending, and the lack of bold reforms that place money in the hands of the people, sting.

Spending has changed dramatically as well. Changing risks to income has automatically led to individuals cutting back on many expenses. Incurring no expense on eating out, entertainment, travel, or clothes, is the new normal. Beyond essential commodities and utility bills, there has been not a single penny spent.

For households surviving on businesses, the spending habits have been left to bleed. The ability of these businesses to employ people, pay salaries, and expand activity is curtailed, creating a negative spiral of loss.

Saving and investing in the background of such events have led to the burial of splendour. Individuals are barely managing to maintain a surplus in the banks, while ones with enough wealth are investigating newer strategies of investment to receive better output from the falling market.

The signs of market behaviour indicate a prolonged recovery for all of us. It is time until we triumph over the pandemic. Until the time arrives, it is wise to restrict our spending only on essentials to avoid further strain on individual finance.

Between the mindless excesses of unbridled consumption, growth, and expansion and the rigid frugality of minimalistic existence, lies a means that we may not be able to choose or pursue. The next 12 months is about that exploration that might define the new character and culture of the household.

To endure through the next few months individuals have been preparing for a contingent fund by minimising regular expenses. There has been this growing trend to clinch enough cash to survive until this crisis passes. Temporarily there have been reductions in contributions in retirement plans as one focuses on redirecting resources to the emergency fund.

Individuals have been inclined to the repayment of loans and have been regular with EMI payments, despite the available moratorium to avoid any extra burden in the future, unless the same has been impossible to be done due to lack of enough resources. Individuals have minded toward long term savings to build upon enough corpus to hedge the risk of market fluctuation and compounding returns.

The times have been extremely uncertain and the panic about finance amongst all has been highly conspicuous. The changing dimensions of spending and saving have been the direct outcome of the crisis all have been forced into. The frontline to survive through this has been very simple, this too shall pass!

A Financial Protection Guide

The relief from retrenchment and layoffs is not much ubiquitous in the Coronavirus saga. With the sudden business closure and unemployment in massive numbers, the world counters times like never before. While we spend a disproportionate time anticipating the future, confusion and fear linger over our present whereabouts.

It is more sensible to respond to the clarion call and drop all precarious predictions and worthless grazing of the way forward, navigate through the tough times and take a stake in the situation in time.

While some glorify the work from home culture, some fear the deepest recession while others struggle to drive through the brunt of the cut-out. The uncertain times have dawned with pay cuts, lower-income, and a persistent threat to individual finances.

Consequently, things like tax payments, loan repayment, mortgage, and losses in business have all piled up to leave individuals doomed. Possibly this crisis puts forth us the paramount challenge of protecting subsisting credits to tackle the past as well as prepare for the future.

In order to keep steady, the primary approach would be to keep sight of the existing cash. Spending needs to be with caution. While we beat through the present, the future is uncertain. There is no denying that it could worsen subsequently. In order to tide through upcoming times, the pivotal idea would be to conserve. With the reduction in discretionary expenses and a linchpin on essential spending, enhancing the frugality would be the key to surviving until the economy rebounds.

In desperate attempts to glide through the pandemic despite business shutdowns and layoffs, the continuous efforts should be directed to liquidate assets and investments in an orderly fashion. This could enable the achievement of urgent short-term cash needs to fortify irrecoverable losses. As a matter of prudence, undertaking considerations and implication of taxes and cost of liquidation would lead to better configure of money.

The key to protecting your monetary reserves would be to shun debts. Avoiding loans against assets may not fetch yields as liquidation could procure. Debts could add to the persisting miseries and lead to a financial catastrophe. On a similar note, fighting shy of using credit cards and switching to debit cards could also help ease out situations in the long run.

Resort to moratorium must unless there is a dire liquidity crisis. The deferred interests shall accrue to a larger amount and there remains nothing much at again.

Owning health and life insurance at such times would also be crucial. Continued coverage is critical for an individual and family. Improving on already existing policy with mandatory health insurance could help fight credit perils in worst-case situations. Having a term plan for financial dependents could leave them with sufficient cash reserves post your demise.

Anxiety and fear could trigger prompt decisions adding to the ongoing losses. Investment in such times hence needs to be done with a clear mind in line with financial goals. Long-term investments are advisable to tolerate the ongoing volatility and to get back higher returns. Aligning all or existing investments in accordance with such earmarked goals would have an extensive role to bank upon your subsisting money. Gold investments would be a ready preference to counter the crisis cyclically.

Even if the gory economic features have left your financial reserves undisturbed till now, it would be sagacious to start early. There is yet no answer to a possible remedy to Covid-19 and the current situation could drag ahead the next few months. For the sake of floating through even if the situations worsen further, a stitch now could help circumvent a dire financial crisis in the future.

Tags: consumer financial, financial protection, consumer bureau, consumer financial protection, financial protection bureau

Rs 20 Lakh Crore Package – Atmanirbhar Bharat Abhiyan

The Finance Minister made the fine print of Prime Minister Narendra Modi’s Atmanirbhar Bharat Abhiyan economic package, India’s economic response to the Covid-19 pandemic by the announced in her 5 days of economic stimulus press conferences. The package of Rs 20 lakh crore has been divided between measures that the government is taking now and the measures that it has taken earlier.

The overall package consists of three primary components – a set of measures taken by the government before Modi’s speech on May 12, the Reserve Bank of India’s liquidity measures over the last two months and the five tranches announced by Nirmala Sitharaman.

The government’s Rs 20 lakh crore economic support package, intended to help the economy tide over the Covid-19 crisis, will involve a very small amount of direct government spending. It is estimated that the actual fiscal impact on the budget could reach the bottom based on the calculations and assumptions made during the series of announcements.

The package may fall short of mitigating the near-term challenges for some businesses, but it is better designed to improve India’s medium-term growth potential.

Even though the announcements made are worth over Rs 20 lakh crore, the actual cash outlay by the government this year and the impact on the fiscal deficit will be far less. This is because many of the government’s proposals are credit-focused or are aimed at easing liquidity concerns for many affected sectors.

Any costs incurred will be initially covered through banks or other financial institutions and thus not result in actual cash outgo by the Centre. A part of the initiatives announced may only be ramped up over an unknown period of time and therefore may not be fully relevant for the fiscal deficit this year.

Further, it is difficult to hone in on an exact figure as much of it shall depend upon the Centre’s pace of implementation of certain programmes.

Meanwhile, it has used the cover of the COVID-19 crisis to plough through long pending, politically sensitive reforms. The fourth instalment of the Rs 20 lakh crore package comprised reforms for sectors including coal, minerals, defence production, air space management, airports, MRO, distribution companies in UTs, space sector, and atomic energy.

For improved ease of doing business among MSMEs, the minister extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year along with excluding Covid-19 related debt from the ‘default’ category under the IBC Code.

There has been no mention of any direct transfer from the economic package. Thus, people like the migrants, domestic workers, and street vendors do not find much to look up to who are in dire need of cash for livelihood and sustenance. The scheme aims at providing empowerment but not entitlement.

The ease of getting loans will be much more effective in an economy where a significant number of people are already finding it difficult to sustain the month on the income received. The announcement made by the Finance Minister has gone through a fair round of criticism by various economists and financial experts, some of the most important points on which the stimulus package falls short include,

Firstly, it is considered to be less of a stimulus and more of industrial reforms, which could have been announced at any time let alone being announced in times of crisis.

Secondly, it has been also observed that the only direct budgetary cost in this tranche was Rs. 8,100 crores to be provided as a raised 30% viability gap funding to boost private investment in social sector infrastructure.

Thirdly, the package may fall short of mitigating the near-term challenges for some businesses, but it is better designed to improve India’s medium-term growth potential

Finally, the fourth and fifth tranches covered sectors of strategic importance but these policies will be rolled out over a 3-6 month period, and any implication for supporting or reviving the economy as it comes out of lockdown is missing.

The relief package is a bold attempt to help the world’s one of the largest economies as it strives towards its first full-year contraction in four decades. While the package contains a suite of offerings targeted at different sections of the economy including the MSMEs.

Any subsequent announcements should include labour reforms and contain a clear focus on addressing the immediate need for cash for the MSME sector to meet its short-term working capital requirements, preserve the entrepreneurial spirit and boost capital formation and consumption. The figure might should up a large amount of package, but the core is hollow.

Tags: atmanirbhar bharat abhiyan, economic package, 20 lakh crore package, economic stimulus package, economic relief package, 20 lakh crore, atmanirbhar bharat abhiyan economic package

Future of MSMEs in India Post Pandemic

The Small and Medium Enterprises (“MSMEs” hereafter) sector plays a central role in the global economy. MSME creates a lot of jobs, drives innovation and acts as an incubator for tomorrow’s multinational corporations.

MSMEs that contribute to almost 45 per cent of India’s gross domestic product (GDP) are suffering because of both supply and demand issues and are quickly losing their small reserves and cannot expect to survive this crisis unless substantive support is immediately available. 

The sector has added some significant power to the overall business, contributing a whopping 40 per cent to the country’s GDP through its 200,000 kroner goods and services. It is also the engine of life for millions of people.

India has registered an 11-year low economic growth of 4.2 per cent in FY20, and many sources forecast a negative growth rate for FY21 as we stare at a recession after almost four decades. Across various horizons, many sectors will experience a contraction in demand and job opportunities, and be contingent upon the performance of multiple factors. 

MSMEs have no easy path to prosperity. The problems that harangue the industry and reduce margins range across infrastructural deficiency including lack of adequate capital, infrastructural hurdles, inadequate digitalisation, scattered markets, absence of compatible financial partners and final and the biggest behemoth of statutory clearances dealing with the ‘Babus’, the political stooges, gangs and goons, cartels etc. 

Alongside all the pre-existing problems, MSMEs were already in a weaker phase owing to the policies like demonetisation and the haphazard implementation of GST, which cornered this sector in a vulnerable position.

Accumulated distress over various policies undertaken was enough to bog down the growth rate for this highly potent sector when COVID-19 came as a watershed moment and has grounded this sector’s independence to sever dependence upon the government’s ability to prevent the death knell of bankruptcy. However, even if MSMEs go bankrupt in the current period, its oblivion for them as IBC de-facto stands suspended. 

There is a certainty about contraction and estimates range from 30-35 per cent of MSME operations are deploying on standby or even shutting down. In such a precarious situation, it is of utmost importance to determine the future path for the MSMEs, and its prediction has to be determined by factoring the history and the developing scenario.

Despite contributing to over 40 per cent of the economy, the percentage of lending to this sector is comparatively low at only 16 per cent. This in itself is an entity large enough to determine the rebound of economic growth and will only spring back into action, once the demand normalises.

MSMEs in India produce around 6,000 types of products; lockdown and the subsequent fear in the populace, lower liquidity and job cuts will alter the demand for products other than those necessary for living consumption of products. Even if the best is assumed and the vaccine comes within the next six months, it is yet to imply the participation of the workers would institute a pre-COVID level of productivity. 

There are primers and hints as to the oncoming situation with the gloomy news. The revival of demand in rural areas, various moves by the States to deregulate labour laws and efforts to woo investment under the new reforms of equity are to help the MSMEs.

It would be more on the lines of re-location of production and demand capacities rather than a fresh generation but would act as a shock-absorbing pad for the poorer States as richer ones would be able to withstand the shock much more easily. 

MSMEs located near a city will take a higher time to recover; the sudden paucity of the workforce will pinch the labour and skill availability of the states. However, the generation of local labour capacity could fulfil labour demand and might as well boost the local economy. 

There could be an increase in MSMEs coming under the risk of becoming NPA’s during the next 12 months. The way out for the MSMEs revival in the short term is rapid liquidity injection, collateral-free loans, low-interest rate subordinated debts and revised definitions, and bringing wider firms under the government benefits bracket.

The government has appropriately responded to realising the current crisis with programs like ‘Equity Support to the MSMEs’. However, the suspension of the IBC might be a downer. An emergency fund for distressed firms to support the MSMEs in times of significant stress has been established, and direct action should be increased by increasing the corpus within this fund. 

Several negatives are countered by the fact that the threshold for migration of businesses from China has reduced, and the democratic setup of the country has ensured better confidence with investors and peers across the world. It has provided the onus entirely upon the government to rein in the economic engines and work onward reducing the complications of running a business.

The contraptions of inadequate and outdated infrastructure and complex and weird tendencies of government officials act as an impediment to the delimitation of the economic forces and commercial creativity.

In conclusion, the short term losses might be immense, wiping out a chunk of the MSMEs from the ecosystem.  However, the incentives of withstanding these exceptionally insane times may provide rewards of equivalent nature. 

Tags: global economy, gross domestic product, future of msmes in india, economic globalization, gdp full form, msme future in india, small and medium enterprises