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RBI plans a regulatory sandbox

Topics Covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
  2. Inclusive growth and issues arising from it.

 

RBI plans a regulatory sandbox

 

What to study?

For Prelims and Mains: Regulatory sandbox- meaning, features, need and significance.

 

Context: The Reserve Bank of India (RBI) will issue guidelines within two months for fintech companies to test their new products on a small group of users before scaling up.

 

What is a regulatory sandbox?

A regulatory sandbox is a safe harbour, where businesses can test innovative products under relaxed regulatory conditions. Typically, participating companies release new products in a controlled environment to a limited number of customers for a limited period of time.

 

Significance and benefits of a regulatory sandbox:

  1. The “regulatory sandbox” will help fintech companies launch innovative products at a lower cost and in less time.
  2. The sandbox will enable fintech companies to conduct live or virtual testing of their new products and services.
  3. These companies will also be able to test the viability of the product without a wider and expensive rollout.
  4. It will help companies to experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.

 

Need:

According to NITI Aayog, India is one of the fastest growing fintech markets globally, and industry research has projected that $1 trillion, or 60% of retail and SME (small and medium sized enterprises) credit, will be digitally disbursed by 2029.

  • The Indian fintech ecosystem is the third largest in the world, attracting nearly $6 billion in investments since 2014. Fintech or financial technology companies use technology to provide financial services such as payments, peer-to-peer lending and crowdfunding, among others.
  • Therefore, in order to protect customers and safeguard the interests of all stakeholders, and streamline their influence on the financial system, there is need for a regulatory and supervisory framework for fintech firms.

 

Way ahead:

Regardless of their specific terms, structures or mandates, regulatory sandboxes clearly work. They act as an impetus to innovation, build trust among stakeholders, protect consumers and result in sensible and forward-looking regulations. By introducing a sandbox for payments, the RBI could achieve the much-needed balance between innovation and regulation and help the Indian fintech industry achieve its full potential.

 

Sources: the hindu.

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