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India’s fintech sector is witnessing a rapid surge in growth, securing its place as one of the fastest-growing fintech markets in the world. With a market size of $31 billion in 2021, it’s projected to reach an astonishing $1 trillion by 2030, according to V. Anantha Nageswaran, Chief Economic Advisor of India, Ministry of Finance, Government of India.

Dr. V Anantha Nageswaran, Chief Economic Advisor of India, Ministry of Finance, said, “A major shift towards a more equitable distribution of investment across sectors including insurtechs, wealthtechs, etc, has started taking place. We are talking about bridging the digital divide and the economic divide. Therefore, the focus now is on how the combination of technology and finance is enabling access to finance and access to opportunities,”

Dr. RS Sharma, the CEO of the National Health Authority, also shared insights on growing India’s health insurance sector using the National Health Stack. He highlighted the successful implementation of two flagship programs: Ayushman Bharat –Pradhan Mantri Jan Aarogya Yojana (PMJAY) and the Ayushman Bharat Digital Mission. These programs, especially PMJAY, have significantly transformed the health insurance industry by providing coverage to over 500 million people, making it the world’s largest health insurance scheme. The digitization of the entire health space is now seen as a massive opportunity to impact the industry further.

In line with this digital health trend, firstly, Dr. Sharma referred to Prime Minister Narendra Modi’s vision that every Indian should have a health account linked to their health records. Additionally, this approach, supported by the enabling platform ‘Health Claims Exchange,’ will facilitate the seamless interchangeability of information. Furthermore, with standardization and cost optimization, the Health Claims Exchange is expected to impact India’s health technology as significantly as the JAM Trinity did for the country’s fintech.

Factors behind India’s fintech boom

There are several driving factors behind India’s fintech boom. One of the main reasons is the nation’s push toward digitalization and financial inclusion. A robust digital infrastructure has largely supported this effort, enabling millions of Indians to gain access to online banking and financial services.

Investments have played a crucial role in the growth of the fintech sector in India. Between 2018 and the first half of 2022, there has been a notable increase in the number of fintech investment deals in the country. Strong private equity and venture capital investment activity in the financial services sector from 2015 to 2021 has backed this.

7 Key trends that are shaping the future of FinTech in India

  • The pandemic-induced surge in digital adoption by consumers and businesses.
  • Horizontal expansion in the payment ecosystem.
  • The rise of neobanking platforms with hyper-personalized products.
  • Ecosystem banking to improve customer experiences and provide comprehensive solutions.
  • InsurTech innovations challenging traditional incumbents.
  • The growth of alternative investment platforms amidst a slowdown in equities.
  • Regulatory compliance, with an emphasis on governance and Know Your Customer (KYC) procedures.

Key strategies for future growth involve, firstly, increasing financial inclusion and education through digitalization. Secondly, transforming the global payment landscape is another crucial aspect. Additionally, hyper-personalizing financial products and evolving ecosystem business models are important steps to consider. Moreover, promoting growth in InsurTech and keeping up with regulatory changes are essential for staying competitive.

Experts predict the rise of ‘India FinTech 2.0’, which will feature a mature ecosystem that aggregates the digital experience of financial services within one of the biggest marketplaces. This could lead to a significant impact on lending and other financial services sectors.

Moreover, the growth of India’s fintech market is also characterized by a rising trend in mergers and acquisitions. Between 2016 and 2021, the value of mergers and acquisition deals in the fintech sector significantly increased, signaling a competitive and dynamic market landscape.

In summary, the Indian fintech market is on a fast track to growth, fueled by digitalization, financial inclusion, and an influx of investments. As the market continues to evolve, experts expect it to reach a staggering $1 trillion by 2030, transforming India into a global fintech hub.

Islamic Finance in India

Islamic Finance in India is at a nascent stage, with only a handful of players in the systemic sector. Although there is no explicit legal bar on Islamic finance in India, banks have encountered challenges in participating in this system, commonly known as Islamic Banking, due to a lack of clarity in the Indian legal structure, especially the Banking Regulation Act, 1949, which revolves around interest-based banking.

Nevertheless, other financial institutions like Non-Banking Financial Companies (NBFCs) have fewer regulatory hurdles and could potentially involve themselves in Islamic finance​​.

Yet, despite the regulatory challenges, there are ways to offer Islamic finance products within the current legal framework. While banks would benefit from amending the Banking Regulation Act, 1949, to enable their participation in Islamic finance, there is no explicit restriction on other entities engaging in Islamic finance.

In this regard, Fintechs, with their innovative capabilities and agility, can play a crucial role in shaping the future of Islamic finance in India​​.

The Promise of Islamic Fintech in India

Islamic Fintech, a blend of Islamic finance and technology, holds the promise of bridging the gap between the traditional finance system and the needs of those seeking Sharia-compliant financial products. By leveraging technology, Fintechs can potentially create a suite of services that cater to this untapped market segment.

Fintech firms can develop innovative financial products and services that are in line with Islamic principles.

For example, one can create digital platforms for profit-sharing investments, revenue-sharing savings accounts, and peer-to-peer lending platforms based on mutual risk and profit sharing.

Furthermore, we can also explore the use of blockchain technology to ensure transparency and trust, which are cornerstones of the Islamic finance system.

The development of Islamic Fintech in India can also contribute to financial inclusion efforts. By catering to those who prefer Sharia-compliant financial services, Islamic Fintech can bring a significant number of people into the formal financial system, stimulating the growth of the business sector and releasing untapped sources of capital.

While the journey towards Islamic Fintech in India is fraught with regulatory and operational challenges, the potential benefits in terms of financial inclusion and business growth make it a compelling avenue to explore.

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