Welcome to the 33rd edition of The Pattern, a weekly newsletter where we disentangle all the rumblings from the world of technology, finance, and economy. It’s been a week of festivities, but there’s good and bad news to be caught up with.
First, let’s talk about the slowdown. While most prominent tech companies - the likes of Apple, Alphabet, Meta, etc - have taken a beating on the stock markets due to muted earnings, there’s a cascade effect on the horizon across the industry. VC activity in the FinTech space has reduced over the last quarter, and a CB insights report showed that the average deal size in Asia has now plummeted to just $4mn.
Meanwhile, the number of unicorns being minted each quarter fell to its lowest - just 6 - in Q3’22. This includes three from the USA and just 2 from Asia. Companies at more advanced stages of growth are finding it difficult to raise capital and jump toward that coveted unicorn status.
Meanwhile, many big FinTechs, including Klarna, have taken a severe beating in their valuations - as much as 80%.
There’s some optimistic commentary too. The total valuation of FinTech players in India could jump to $350 bn from $100 bn by 2026, according to Bain’s India FinTech report. The report added that this might also come with doubling the share of FinTechs in the financial services industry - 14% from the current 7%.
Meanwhile, the overall financial services industry is set to grow to $2.3 trillion in the coming four years from the current $1 trillion.
The good news is also multiplied for FinTech infrastructure providers, such as FinBox, that help lender and enterprises launch and scale new-age FinTech programs. The company predicts that infrastructure players will see continued growth even as their digital lending peers might see 15% year-on-year growth. Pretty healthy for a recessionary period, right?
MSMEs find a new lease of credit - for now
The government has reiterated its commitment to ensuring credit flow to the MSME sector and said that the extension of its covid-time MSMEs Emergency Credit Line Guarantee Scheme (ECLGS) till the end of this financial year will keep credit flowing to the small and medium businesses across the country.
The scheme was launched to provide impetus to lenders to disburse more credit to MSME borrowers with a guarantee from the center as an emergency line. The total limit covered under this scheme has also increased by Rs 50,000 crore to Rs 5 lakh crore in total.
“Within the industry segment, growth in credit to MSME was higher, in part assisted by the benefits accruing from the ECLGS Scheme. As per the National Credit Guarantee Trustee Company Ltd. (NCGTCL), the agency which operates the ECLGS, as of March 11, 2022, 117.9 lakh businesses were supported by the scheme 95.2 per cent were MSMEs,” the ministry said.
This is undoubtedly good, considering economic slowdowns affect the smallest enterprises and households the most. However, will this scheme proves enough to alleviate the sector's infamous Rs 25 trillion credit gap is anyone’s guess.
In case you missed it, we also conducted an in-depth chat on this issue with industry experts from IIFL Finance and MSME focussed Vyapar app. It was packed with insights and ideas on taming this credit gap; you can watch the entire playback here.
Bouquets and brickbats
Meanwhile, the RBI in its tireless pursuit of safeguarding the banking and financial system and ensuring a long-term stability, is now reviewing bank’s non-core businesses. This includes ancillary arms of banking institutions such as asset management, insurance and wealth management etc.
The regulator is looking to limit any regulatory arbitrage that might exist in such cases, and it’s expected that any news from this front could also lead to an amendment in the regulation etc. We’ll keep our eyes on this one in the future editions of the newsletter as well.
Meanwhile, small finance banks received praise from M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI). Rao said that SFBs play a progressive role in deepening credit access across sectors of the economy and are pivotal to the RBI’s ‘differentiated banking’ - licensing regime to incorporate various structural and use-case-based differentiation for banking players.
“The growth of aggregate deposits and credit of SFBs have been significant since March 2018. In the quarter ended March 2022, the deposits grew by 37.3 per cent on year-on-year (YoY) basis while growth in the credit portfolio was 25.6 per cent, as against the growth rate of deposits and credit of scheduled commercial banks at 10.2 per cent and 10.8 per cent respectively,” he said.
This is all from me this week. I hope you had a great festive week. I will see you next week. Meanwhile, as always, reading recommendations follow below.
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