Budget 2020: Ease credit access, broaden ESOPs understanding, says CRED’s Kunal Shah

The fintech industry in the country is growing at a significant pace and creating waves across India’s financial ecosystem. Promoting the government’s digital economy agenda, the fintech space is expected to grow at a steady rate.
Kunal Shah, CEO and founder of CRED, talks to ET.com on how certain interventions from the government can help boost the fintech ecosystem in the country.

Economic Times (ET): Currently, fintech is one of the hottest sectors among startups and has been gaining the attention of many investors. Why is that?Kunal Shah (KS): In India, financial services command about 50% of public market capitalization and 50% of profit pools. This builds investor confidence in the opportunity for tech firms to create value. Secondly, financial services hold greater opportunity for Indian startups due to regulatory caution- driven by its importance as an economic lever – around sensitive data being handled by global players.

ET: What challenges do you believe the fintech ecosystem is yet to overcome in the country and what government regulations can help?KS: Fintech startups are in the preliminary stages of demonstrating value. Banks and legacy financial institutions have earned consumer and ecosystem trust, which most startups have not yet built. Regulators can facilitate a competitive environment that enables greater participation, easier access to credit, lower cost of financial services such as insurance, and enhanced financial inclusion.

ET: What are your expectations from the upcoming Budget?KS: Consumption is a key economic driver and the only way to drive consumption is by expanding access to and utilization of credit. Individual credit is heavily under-utilized in India; just about 20 million Indians have credit cards, for example. Easing access to credit for trustworthy individuals is the first step in expanding consumption. The second step involves changing cultural norms around credit utilization.

Further, our institutions need to create a desire among our best to live in India and create wealth here. There is abundant capital, resources and intellect in India that today seek other avenues to maximize growth, which could have created immense value if invested locally. We need to create the right ecosystem for our smartest to stay back, celebrating wealth creators and easing their lives and work.

Also, credit utilization and wealth creation are unsustainable without healthy financial habits. The children of the post-liberalization era – who are today’s working professionals – are the first generation of taxpayers, and this cohort is only going to grow. This group does not have the systemic or institutional knowledge or financial advisory networks that the generational wealthy have access to. Basic investment education, knowledge of financial instruments and insights into individual usage should be provided upfront rather than in the fine print.

ET: Do you believe tax benefits for ESOPs would be a game-changer for the startup ecosystem?KS: It’s important to encourage more people to experience the benefits of ESOPs versus being salary-dependent. Very few Indian companies have demonstrated the value of ESOPs, and we need to broaden the understanding about ESOPs’ ability to democratize wealth creation.

ET: How can tax incentives boost the startup ecosystem in the country?KS: As we’ve seen in the tech sector, systemic incentives that allow companies to attract capital over the long term drive foreign investments in Indian companies, enable Indian companies to earn foreign revenue, and increase participation in the startup ecosystem. Policy consistency across areas such as capital gains, angel tax, and retrospective taxation, will build investor confidence and increase their participation.
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