MC Exclusive | Fintech Convergence Council may get licence to be self-regulatory organisation

The central bank wants the fintech industry to develop SROs to better manage and regulate the emerging industry.

Fintech Convergence Council (FCC), a representative body of fintech and digital lending companies, may bag the self-regulatory organisation (SRO) licence from the Reserve Bank of India (RBI), according to sources aware of the development. The central bank wants the fintech industry to develop SROs to better manage and regulate the emerging industry.

Founded in 2017, FCC represents the members of the Internet and Mobile Association of India (IAMAI) and works on penetration of financial services with emphasis on areas like digital lending and peer-to-peer (P2P) lending. These are the segments that the RBI is keen on harmonising in terms of operations and practices.

Also read: Fintechs to get self-regulatory organisation in 3-6 months, say industry players

The Global Fintech Festival, an annual conference for the fintech ecosystem, is organised by FCC with the Payments Council of India (PCI) and the National Payments Corporation of India (NPCI).

Additionally, sources said that Fintech Association for Consumer Empowerment (FACE), another industrial representative body, will apply for the SRO licence this month. “FACE is in advanced stages of internal discussion and will apply for the SRO licence with the RBI this month,” said a person aware of the development.

An SRO is a non-government organisation (NGO) that sets monitoring standards for industry players and works as a bridge between the industry and the regulator. For example, Micro Finance Institutions Network or MFIN is a regulated SRO for the microfinance sector.

The development to form SROs for the fintech industry came after the central bank on May 30 released its final guidelines for financial technology firms to create an SRO aimed at enforcing regulatory standards and fostering transparency in the sector. Under the 'Framework for Recognising Self-Regulatory Organisation(s) for FinTech Sector’ for the industry, the RBI said that the SROs for fintech sector should also be independent from influence, encouraging members to subscribe to regulatory expectations, and repository of information.

On September 6, 2023, RBI Governor Shaktikanta Das urged fintechs to form the SRO over the next year. "I would like to use this opportunity to urge and encourage the fintechs to establish a self-regulatory Organization themselves," Das said in a speech at Global Fintech Fest (GFF) 2023.

In the past year, the RBI has been cautiously watching the fintech space and with time, has introduced some measures and guidelines for the growing fintech space, including the guidelines for digital lending in September 2022.

Also read: RBI’s framework release today suggests Fintech SRO to be development oriented, true representative

Though the RBI has repeatedly asked fintechs to go slow on loan book growth, the sector doesn’t seem to be in sync with the RBI's ask on this front. For instance, fintech firms recorded a 49 percent jump in total loan disbursements in FY24, a report by FACE showed.

Total disbursement jumped to Rs 1.5 lakh crore and the volume of disbursements rose 35 percent YoY to nearly 10.2 crore. This accounts for a third of the total retail lending or personal loans segment as categorised by the RBI. The average ticket size of loan disbursements rose to Rs 12,648 in 2023-24, up 14 percent on a FY23’s ticket size of Rs 11,094.

The report also indicates that 29 member companies out of 83 (35 percent of the companies) were profitable in FY24, compared to two-thirds in FY22, said the FACE report.