India’s new fintech firms promise high returns on products that often carry greater risks. Jiraaf, an alternative asset platform, is marketing investment products tied to invoice discounting that can yield 9%-14% for 30-90 days and corporate debt with 1-3 year tenors that yield 8%-20%, according to its website. Grip says investors could make up to 21% pretax returns in leases. BondsIndia.com is advertising returns of 275% over what fixed deposits bring in.
But with the Reserve Bank of India raising rates and tightening cash to quell inflation, there’s a rising risk that the assets underlying these products could come under stress.
Jiraaf and the other companies say they work hard to protect investors. Lendbox said it uses data and other mechanisms to ensure the quality of its borrowers is of the highest order and to work towards the recovery of unpaid loans. Grip, the asset leasing firm, says it does rigorous due diligence on all deals and uses measures like security deposits to protect clients.
“Indians have limited investment opportunities,” said Saurav Ghosh, co-founder at Jiraaf. “We wanted to bring high-yield fixed-income products that cater to the gap between equities and bank fixed deposits.”
Asset Leasing
In Mumbai, Anirudha Basak, 27, who works at a Mumbai-based fintech-platform, says he and his family have seen payoff from alternative investments. After a casual conversation with a product manager at another platform called Leaf, Basak invested about 500,000 rupees ($6,404) in asset-leasing on behalf of his mother, who he says is now receiving monthly interest payments.
But the big elephant in the room remains crypto, with exchanges reporting massive jumps in user base in smaller cities. The central bank has pushed back against the asset, citing financial stability concerns, but the government is yet to decide on its legal status.
Crypto markets have slumped recently as stagflation concerns drag on risk assets, with Bitcoin dropping to the lowest level since December 2020 and other major tokens like Ether also falling sharply Monday.
The Reserve Bank of India has set up a department to oversee fintech and is regulating non-banking financial entities like peer-to-peer platforms. The capital markets regulator, the Securities and Exchange Board of India, is also planning to look into corporate bond platforms.
“Traditional asset classes like equity, fixed income, real estate, etc., are well covered under the regulatory framework with adequate investor protection built into their respective governing regulations,” said Srikanth Subramanian, CEO-designate at Kotak Cherry, an investment platform providing an array of products to retail investors. “However, in case of emerging asset classes like crypto that are yet to come under the gamut of a dedicated securities regulator, the lacuna still exists that needs to be plugged by regulation.”
In recent years, the risks of alternative platforms with limited regulatory oversight have been on show elsewhere in the world. China saw a wave of defaults on peer-to-peer lending platforms in 2018, fueling a regulatory crackdown.