Mundra, however, noted that banks have still have an

opportunity to capitalise on these fintechs as once they grow in size they will need more capital support, which their present VC-funded does not support.

"A large majority of fintechs are venture capital supported entities, which can't exactly substitute a wide capital base. This is where banks can capitalise on the fintech ecosystem.

"The banks can also leverage big data, data analytics, SME friendly applications etc in effectively lending to MSMEs while remaining compliant with extant KYC norms and appraisal and monitoring principles and reduce their intermediation and compliance costs," the deputy governor said.

However, he warned that fintech players that it won't be cake walk.

"Despite many inherent advantages that the fintech players enjoy, it is not a one way street for finctech companies as they do not have a big client base of their own and without the expertise to navigate the regulations and licensing discipline of the finance industry which will prevent from going very far on their own." "So the way forward for them is collaboration with banks, he said, and pointed out that "since banks and fintech firms have different comparative advantages and a strategic collaborative partnership between the two will liberate them to focus on their respective core competencies and contribute to the innovation process," he said.

Speaking on the MSME financing, Mundra underlines the desperate need for focusing separately on micro customers from amongst the MSME segment.

Noting and almost 93 per cent micro MSMEs are outside the formal credit system in the country, he said, "this segment, including small enterprises, can benefit immensely from the collaboration between banks and the fintech players whereby their other payment records can form a basis for working their credit worthiness."

Globally, he said the MSME sector accounts for over half of the world GDP and employs almost two-thirds of the global workforce, and is this virtually the backbone of the global economy.

Back home, Mundra said around 51.1 million MSME units contribute around 8 per cent of GDP, 40 per cent of total exports and around 45 per cent of the manufacturing output and provide employment to around 120 million. These numbers are excluding the contribution of MSMEs in the services sector.

On the need to increase the funding to this sector, he said, as per an International Financial Corporation report, there is a funding gap of USD2.1-2.6 trillion for all formal and informal MSMEs in emerging markets alone, which is equivalent to 30-36 per cent of outstanding MSME credit.

"SME lending being a hugely under-served market is a major opportunity for fintechs to build scale in a sustainable manner by offering services such as credit underwriting, marketplace lending, etc," Mundra concluded.

(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)