RBI Urged to Develop Framework for Peer Lending and Crowdfunding to Aid MSMEs

New Delhi, Jul 17 (KNN) In a recent development, Micro, Small, and Medium Enterprises (MSMEs) have called upon the Reserve Bank of India (RBI) to establish a regulatory framework for peer lending and crowdfunding.

This appeal comes as a response to the growing credit gap faced by these businesses, according to an industry insider present at a meeting with central bank officials in Mumbai last week.

The industry source emphasised the need for a comprehensive framework that would include both equity-based and debt-based crowdfunding models.

"Given the efficacy of these frameworks, it is imperative for India to adopt a comprehensive framework encompassing both equity-based crowdfunding with an upper limit of Rs 10,000 for an investor to invest in MSMEs and debt-based crowdfunding models," the source stated. This approach aims to provide MSMEs with more flexibility in fundraising options.

The discussion also pointed out the success of crowdfunding platforms in other countries. Over 80 geographies, including the United States, the United Kingdom, the European Union, Saudi Arabia, and the United Arab Emirates, have already implemented regulatory frameworks for crowdfunding. These measures have significantly facilitated capital flow to small businesses in these regions.

Notably, the United States, the United Kingdom, and China dominate the global financial reward crowdfunding market, collectively accounting for 96 per cent of the total. The US leads with a 51 per cent share, followed by China at 28 per cent and the UK at 17 per cent.

Crowdfunding, a method of raising capital through collective contributions from a large number of individuals, typically via online platforms, has emerged as a promising alternative for MSMEs.

Similarly, Peer-to-Peer (P2P) lending, a form of crowdfunding that connects borrowers directly with investors without traditional financial intermediaries, offers more accessible loans often at lower interest rates than conventional bank loans.

As MSMEs continue to face financial challenges, the implementation of a robust regulatory framework for these alternative funding methods could prove crucial in bridging the widening credit gap and fostering growth in this vital sector of the Indian economy.

(KNN Bureau)