8 entities to test fintech products for MSME lending under RBI’s regulatory sandbox

Eight entities, including SIDBI, have been allowed to test their fintech products for MSME lending as part of the third cohort under RBI’s regulatory sandbox scheme.

Regulatory sandbox refers to live testing of new products or services in a controlled/test regulatory environment for which the regulators may permit certain relaxations. The Reserve Bank had announced opening of the third cohort under regulatory sandbox in September, 2021 for MSME lending. The RBI said it had received 22 applications under the third cohort, of which eight entities have been selected for the ‘test phase’.

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The entities are — FinAGG Technologies; Moshpit Technologies; Mynd Solutions; New Street Technologies; Rupifi Technology Solutions; Small Industries Development Bank of India (SIDBI); SysArc Infomatix; and ZikZuk Technologies. The entities would commence testing of their products this month itself. In another statement, the RBI announced opening of the fourth cohort under the Regulatory Sandbox (RS). The theme of this cohort is ‘Prevention and Mitigation of Financial Frauds’.

The application for the fourth cohort can be submitted from June 15 to August 1, 2022. The regulatory sandbox allows the regulator, innovators, financial service providers and customers to conduct field tests to collect evidence on the benefits and risks of new financial products. The objective of the regulatory sandbox is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.

As per the RBI, the first and foremost benefit of regulatory sandbox is that it fosters ‘learning by doing’ on all sides. Among other benefits, the regulatory sandbox could lead to better outcomes for consumers through an increased range of products and services, reduced costs and improved access to financial services. The RBI had invited applications for the first cohort’ with theme ‘Retail Payments’ in November 2019 and for the second cohort with theme of ‘Cross Border Payments’ in December 2020.

The target applicants for entry to the regulatory sandbox are fintech companies including startups, banks, financial institutions, any other company, and Limited Liability Partnerships (LLPs) and partnership firms, partnering with or providing support to financial services businesses.