The budget is a boon for fintech lenders and MSMEs

Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, has ushered in a wave of positive changes for the fintech lending industry and MSMEs (micro, small and medium enterprises). With a strong focus on empowering small businesses and fostering innovation, the budget introduces several measures that promise to transform the financial landscape for MSMEs and lenders alike.

Boosting MSME credit with higher MUDRA loan limits

One of the most notable announcements is the increase in the cap for low-interest loans under the  MUDRA entrepreneurship scheme from Rs 10 lakh to Rs 20 lakh. This enhancement gives small businesses a bigger financial canvas.This change means supporting a wider range of entrepreneurial ventures, helping them grow and thrive.

Ensuring continuity of credit during tough times

Introducing a mechanism to facilitate the continuation of bank credit to MSMEs during periods of stress acts as a lifeline for many small businesses. This initiative reduces the risk of defaults and ensures financial stability for MSMEs.

Follow: Union Budget 2024 Live Updates on Moneycontrol

Lower turnover threshold for TReDS 

Reducing the turnover threshold for mandatory enrolment with the Trade Receivables Discounting System (TReDS) platform from Rs 500 crore to Rs 250 crore is a significant step forward. This enables a larger number of MSMEs to benefit from invoice discounting, improving their cash flow management. Fintech platforms specialising in invoice discounting will find new growth avenues, helping more businesses manage their working capital efficiently.

E-commerce export hubs: A gateway to global markets

Establishing e-commerce export hubs in PPP or public-private partnership mode to enable MSMEs and traditional artisans sell their products internationally is a visionary initiative. This development opens new horizons for small businesses, allowing them to tap into global markets. Fintech companies can play a crucial role by providing seamless payment solutions, currency exchange services and export financing options, making it easier for MSMEs to go global.

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Revised income tax structure: More disposable income

The revised income tax slabs, resulting in savings of up to Rs 17,500 for a taxpayer, is likely to boost disposable incomes and consumer spending. This will indirectly stimulate economic activity, and increase demand for credit among individuals and businesses alike. For fintech lenders, this presents an opportunity to expand the customer base and support more entrepreneurial endeavours.

Skilling and innovation: Building a future-ready workforce

The budget’s emphasis on skilling, including the upgrade of 1,000 industrial training institutes and the Internship programme announced as part of the prime minister's package, is set to create a more job-ready workforce. This will lead to a more dynamic business environment, with MSMEs and startups benefiting from a pool of skilled labour. Ultimately, this drives demand for fintech lending solutions to fund new ventures and expansions.

Infrastructure and industrial development

With substantial investments earmarked for infrastructure development and the creation of industrial parks, the fintech sector is poised for growth. These initiatives are expected to create new business opportunities, and fintech lenders can support businesses in these projects by providing necessary financial services.

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Incentives for IFSC and capital gains tax reforms

The budget also announced incentives for the International Financial Services Centre (IFSC), such as tax exemptions for retail schemes and exchange-traded funds. Additionally, rationalising capital gains taxes, including raising the short-term gains tax on specified financial assets to 20 percent and long-term gains tax on all assets to 12.5 percent, is expected to streamline financial operations and provide more clarity.

Credit guarantee scheme for manufacturing sector

The introduction of a credit guarantee scheme for the manufacturing sector is another significant move. This scheme will enable MSMEs to take term loans to buy machinery and equipment without collateral or a third-party guarantee. However, borrowers will need to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance. These measures are designed to boost productivity and competitiveness in the manufacturing sector, giving fintech lenders new avenues for growth.

A bright future ahead

Overall, Budget 2024-25 presents a positive outlook for the fintech lending industry and MSMEs. The government's commitment to fiscal prudence, coupled with targeted measures to support small businesses, skilling and infrastructure development sets a strong foundation for sustainable economic growth.