Following a series of negotiations and amendments to foreign exchange rules by the government, the stage is now clear for entrepreneurs and wealthy investors in India to invest their money in offshore fintech companies.
Note that many investors and entrepreneurs in India had previously found it incredibly difficult to invest in foreign fintech companies because of the unfavorable exchange laws. The laws only allowed non-banking financial companies (NBFCs) registered with the Reserve Bank of India to invest in foreign companies providing fintech services in the country.
Markets participants following the recent development stated that before now, angel investors and entrepreneurs never got the chance to invest in foreign fintech companies as they weren’t eligible for licenses from the NBFC. Another thing making it difficult for entrepreneurs to invest in foreign fintech companies was the high compliance requirements which put a lot of people off.
With new amendments made to the rules, entrepreneurs and angel investors can now invest in foreign fintech companies. But to do that, they must provide a three-year profitability record. That said, individuals who route their investment through the International Financial Services Center (IFSC) do not need to meet this requirement.
What this means for Indians
Entrepreneurs and angel investors who have hitherto been unable to invest in foreign fintech companies now have the opportunity to do so as per the new amended rules.
According to Tejesh Chitlangi, senior partner at IC Universal Legal, allowing Indians with a three years net profit record to invest in offshore fintech companies providing financial services is a welcome development. He added that the move would bolster the IFSC regime and provide opportunities for angel investors in the country to enjoy all of the perks that come with fintech investment.
Besides modifying the foreign exchange rules, the government has also launched a new portfolio route that would allow indigenous investors to buy less than a 10% stake in offshore companies without being required to set up a joint venture. Before now, the only route for such investment was via overseas direct investment (ODI), which needed investors to set up a joint venture or a wholly owned subsidiary.