IFSCA Incentive Scheme: An Indian Fintech Boom in the Making

Over the last ten years, FinTech has significantly impacted the global financial services sector. A 3X increase in investments into Fintechs was reported in 2021. A significant government program and organic and cooperative environments have also contributed to this development.?

International Financial Services Center Authority (IFSCA) is one such initiative of the Government of India. According to Section 12 of the IFSCA Act 2019, the Authority regulates and develops the IFSC financial services market.??

To support the development of an international FinTech hub at India's GIFT (Gujrat Internation Finance Tec-City) International Financial Services Center (IFSC), the International Financial Services Centers Authority created the IFSCA (FinTech Incentive) Scheme.

The Need

With?87% adoption of fintech, India is more advanced than many sophisticated nations making it the world's fastest-growing FinTech market. By 2025, FinTech is expected to reach?USD 150 Billion, growing at a CAGR of 20%. Indian fintech market has received $29 bn in funding across 2,084 deals to date (January 2017-July, 2022), gaining a 14% share of the global funding and Ranked #2 on the deal volume.

Regarding the number of FinTech hubs, India is Asia's top innovation hotspot. According to a?global FinTech index report, India has six of the top 100 FinTech cities in the world.?

India must develop a fintech sector to become an important financial center; therefore, the government has gradually changed regulations and legislation at Gujarat International Finance Tec-City (GIFT City) to foster a thriving ecosystem for fintech.

Some Of The?Benefits?Of The GIFT IFSC:

• For 10 out of 15 years, there will be a 100% tax exemption.
• Dividend income distributed by a company in the IFSC is to be taxed by the shareholders.
• Financial institutions (such as banks, insurance companies, etc.) can now bring back services and transactions previously conducted in offshore financial centers under the IFSC.
• No GST on services: (Received by a unit in the IFSC) (Provided to IFSC units)
• Exemption from security transaction tax, commodity transaction tax, and stamp duty is carried out on the IFSC exchange.?
• As an international financial services center, GIFT IFSC will facilitate inbound and outbound investments with greater ease of business.

FinTech Incentive Scheme, 2022

To encourage the creation of a world-class FinTech Hub at GIFT IFSC, the IFSCA announced its Fintech Incentive Scheme.

1. FinTech Start-up grant:- This grant?(Up to ?15 Lakh)?will help a start-up with a new FinTech idea or solution develop a product and go-to-market plans to create a minimum viable product (MVP).

2. Proof of Concept (POC) grant:- A FinTech Entity (FE) can use this grant (Up to ?50 Lakh)?to carry out a Proof of Concept (POC) in the domestic or international market.

3. Sandbox grant- This grant?(Up to ?30 Lakh)?will allow FEs to test new products in a "sandbox."

4. Green FinTech Grant- This grant?(Up to ?75 Lakh)?will be used to develop ways to make sustainable finance-related investments easier, such as ESG investments.

5. Accelerator Grant- This grant?(Up to ?10 Lakh)?will aid accelerators at IFSC in finding mentors, finding investors, bringing in more projects, and forming partnerships.

6. Listing Support Grant?- This grant?(Up to ?15 Lakh)?will assist domestic FE companies in going public on recognized stock exchanges.

The Beneficiaries

FinTech Incentive Grants will be available to eligible FinTech Entities who are:

• Participants in the Innovative Sandbox.
• Those referred to the Authority as part of a FinTech bridge agreement with a counterpart regulator.
• Participants in Accelerator, Cohort, or Special Programmes supported or recognized by the Authority;
• The entities that have a Memorandum of Understanding (MoU) with the Authority or who have collaborated or arranged special arrangements with the Authority.

Requirements for Grant Eligibility:

The FinTech entity's eligibility is specified by two conditions which are applicants who reside in India or applicants who reside outside India;

For an Applicant Living in India, the Following Conditions Must Be Met:

• The entity must be registered with DPIIT (Department for Promotion of Industry and Internal Trade).
• An entity must be registered under the Companies Act of 2013 or the Limited Liability Partnership Act of 2008 (LLP) or as a Branch of a Company or LLP in the IFSC.
• The entity should be governed by the RBI, SEBI, IRDAI, and PFRDA.

Non-Indian applicants must meet the following conditions:

• The entity not a resident of the country or region follows FATF rules.
• Non-residents must own at least 51% of the shares in a FinTech entity registered outside India.

Excluded from eligibility

• A FinTech company previously received grants from a state or central government for similar projects.

Certain Things FinTechs Should Remember.

• The FinTech entity ensures all regulatory criteria are met and holds its representatives accountable if any omissions or commissions occur.
• While in a sandbox or accelerator phase, fintech businesses or projects must operate from the IFSC.
• If feasible, the fintech firm at IFSC must incorporate after completing the sandbox/license program and seek registration/authorization/license under the Act.
• For three years, funds under this plan cannot be used outside India.?
• If the fintech firm fails to comply, the entity must refund the grant amount plus 8% interest.

The IFSC holds regular Hackathons to coordinate IFSCA and GIFT IFSC with FinTech ecosystems, solve business difficulties for GIFT IFSC banking units, and promote retail banking services.

IFSCs: The Way Ahead

With initiatives coordinated by the IFSCA, the fintech sector's requirements have been appropriately prioritized. As a result, a supportive environment has been created for fintech companies to contribute to India's goal of becoming a central financial hub.?

The framework and incentives have reaffirmed the fintech companies' belief in India's plan to make GIFT City the center of financial innovation and technology. They are expected to attract local and international fintech companies looking to conduct business in India.

Sources :

1- Latest press release by IFSCA 12/9/22 - Link

2- Framework for Fintech in IFSC 27/4/22 - Link

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