By Bhavik Vasa

Additionally, addressing the Goods and Services Tax (GST) concerns and clarifying angel tax issues remain pivotal for startup sustainability

As Finance Minister Nirmala Sitharaman will present the final Interim Union Budget on February 1, the startup ecosystem, especially the Fintech sector, continues to display a strong bullish sentiment.

Fintech leaders across different segments, from payments to lending, are quite optimistic about the sector’s robust ongoing and future growth on the back of some crucial policies and initiatives undertaken by the government to improve the country’s financial inclusion through a rigorous yet supportive regulatory landscape over the last half a decade but more so post the 2020 pandemic.

There is no doubt that the fintech ecosystem is thriving and is one of the fastest growing in the world in segments such as digital payments, banking infrastructure, penetration of bank accounts, and witnessed a growth in participation of equity investors. However, the lending sector has been a laggard even as India’s startup ecosystem grapples with an extended funding downturn, fluctuating valuations, and the challenges of a dynamic market. In such a scenario, Fintech founders are eagerly anticipating key announcements and supportive measures in the forthcoming Budget.  

At the top of the wishlist is a solid demand for simpler and more effective regulatory procedures along with lesser compliance burdens. Streamlining these administrative tasks can free up valuable time for founders to focus on business growth rather than navigating through complex paperwork.

Second, on the list is a need for tax reforms to ease the financial burden on startups. Tax incentives and exemptions can encourage innovation and risk-taking, crucial elements for fostering a thriving entrepreneurial ecosystem. Additionally, addressing the Goods and Services Tax (GST) concerns and clarifying angel tax issues remain pivotal for startup sustainability.

Lastly, founders are hopeful for initiatives promoting skill development and talent acquisition. Investing in education and training programs can enhance the workforce’s skill set, making them more aligned with the evolving needs of the industry.

As a pioneering player in the SME lending sector, we expect and foresee transformative trends that will shape its trajectory in the coming years.

Firstly, there is a strong emphasis on leveraging technology for a more seamless lending process. Integrating advanced analytics and artificial intelligence enables more accurate risk assessments, ensuring efficient and targeted funding for businesses.

Secondly, diversification of financial products is on the horizon. GetVantage aims to introduce tailored financial solutions beyond traditional lending, such as revenue-based and embedded financing. These innovative models offer flexibility and non-dilutive capital, aligning with the unique needs of SMEs.

Furthermore, strategic partnerships with financial institutions and government bodies are in the cards. Collaborations can unlock new avenues for funding, provide regulatory support, and contribute to the overall growth of the SME lending sector.

We also expect that several new trends are poised to take center stage in the early months of the following year, influencing the startup and investment landscape in India.

Some of these trends include:

  1. Rise of Embedded Finance: According to a report by McKinsey, the embedded finance market is expected to reach USD 7.7 trillion globally by 2030.

Implication: Startups increasingly embed financial services into non-financial applications, offering seamless transactions and enhancing user experiences.

  1. Sustainability and Impact Investing: In 2023, impact investments in India grew by 62 per cent, reaching USD 8.2 billion.

Implication: Investors show heightened interest in startups focusing on sustainability, social impact, and responsible business practices.

  1. Decentralized Finance (DeFi) Adoption: The total value locked in DeFi protocols surpassed USD 200 billion in 2023.

Implication: DeFi is gaining traction, providing alternative financial services outside traditional banking systems.

  1. Government Initiatives for Digital Transformation: The Digital India program will contribute USD 1 trillion to the country’s GDP by 2025.

Implication: Continued government support for digital transformation initiatives will create a conducive environment for tech-driven startups.

Prominent Developments and Future: 

Looking ahead, Revenue-based Financing or alternative finance players in the lending space are playing and would play a pivotal role in the evolving SME lending landscape.

 We anticipate companies in the space to demand tailored financing solutions, especially as businesses seek more flexible and sustainable funding options. Strengthening its tech infrastructure and fostering strategic collaborations will make us a reliable partner for SMEs navigating the post-pandemic recovery.

 In conclusion, the Interim Budget 2024 is key to shaping the trajectory of startups and SME lending platforms in India. As expectations align with the need for regulatory simplification, tax reforms, and skill development initiatives, the startup ecosystem is poised for transformative growth. 

The article was originally published in BW Disrupt.

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