India’s success with fintech, data and entrepreneurship provides invaluable lessons for Malaysia
By Shravishtha Ajaykumar & Mihir Sharma
DATA and the assets that utilise it have become key functional components of the Indian and global economy in the last decade. Its multidimensional attributes have made it central to the global conversation about trade, finance and development – as well as peace and security. This multifaceted nature of data governance and policy require aligning action to global goals like the Sustainable Development Goals (SDGs), regional and national interests, and even private sector aspirations.
Malaysia and India share not only a region and a continent but also economic and social attributes that could jump-start an online economy structured to benefit their start-ups and their young populations.
Synergies, areas of cooperation
India’s digital economy road map has, so far, focused on three areas: fintech, data and entrepreneurship. They are a combined success. The digital infrastructure of the Indian payments market is overseen by the National Payments Corporation of India (NPCI). Unified Payments Interface (UPI) oversees data/user interface. The Reserve Bank of India (RBI) supervises UPI while it functions across platforms alongside a new e-commerce initiative, the Open Network for Digital Commerce.
This combination targets the prosperity of micro, small and medium enterprises (MSMEs). Similarly, the Malaysian government has successful MSME-focused ventures that can be built on and provide lessons to others. About 20% of the Malaysian population is engaged in early stages of entrepreneurship. The Malaysian government with six of its ministries and 12 agencies has spent the last 25 years investing in the cyber sector of entrepreneurship.
In both countries, there is a fragmented data landscape, which risks failing to capture value that could accrue from digital technologies. It may also increase potential for privacy breaches, cyberattacks and other risks. Malaysia and India have dedicated a large amount of focus to fintech and employment. To optimise payments and ensure that there are both user access and enterprise seamlessness across platforms, RBI mandated an account aggregator, a system used to create data commonality across platforms, specifically payments. Similarly, Malaysia has policies to share financial data among banks and financial start-ups.
Despite these advancements, there are discrepancies in the goals the road maps wish to achieve and the present landscape. Most Malaysians rely on cash over digital payments and financing. Moving to digital transactions is dependent on a new regulation system supported by technologies and user acceptance.
Tapping Indian digital knowledge
Another challenge is the lack of cohesive data privacy regulations globally and regionally. India has no data privacy regulations and is re-examining its priorities in this realm and while Malaysia passed a bill in 2013, there is a need to amend and update such policies with innovating technologies.
Malaysia has reported a lack of mentorship in its start-up landscape. With India’s start-up economy being the third largest in the world, Malaysia could tap into India’s expertise to convert its population to embrace cashless transactions and create a supportive environment for entrepreneurs. India’s digital knowledge, partnerships and execution could be utilised to set up a system across the supply chain, which could jumpstart Malaysian MSMEs.
Malaysia’s digital economy is a large contributor to GDP at 22.6% in 2020 with aims to reach 25.5% by 2025. With India’s start-up economy already thriving and Malaysia’s digital economy succeeding, collaborations across the regulatory and private sectors could reduce entry and set-up costs, which remain the biggest inhibitors to MSME growth. Inconsistencies in platform representation and access to power are among the barriers in set-ups. Among non-R&D innovations, partnership in marketing innovation has been identified as one of the ways to sustain MSME’s long-term growth.
In terms of data privacy and digital divide, both are persistent in India and Malaysia. It is recommended that both countries associate and aim to create regional regulations or cohesive national regulations to ensure data privacy. Harmonising such policies will also remove discrepancies in how data is treated in both countries in terms of localisation versus cooperation to create a more conducive environment for MSMEs. This will counter the lack of digitisation that increases costs and assist in the liability of data privacy that MSMEs face with a limited human capital and large global audience.
Increasing the adoption of digital transactions requires overhauling regulations and adapting technologies and business practices. The Malaysian government is leading the change through regulatory reforms. Bank Negara Malaysia’s Financial Sector Blueprint 2011-2020 encourages the migration to electronic payments to promote efficiency, setting a target of 200 transactions per capita by 2020. India, too, launched a similar strategy and a framework for data governance.
Incorporating such changes and collaborations is an encouraging start but financial inclusion is still a challenge that cannot be negotiated on until there is complete participation. In India, players like Slice and Uni, which offer credit lines, have become competitors to banks. Their existence has led the way for new discussions on fintech regulations.
The lack of regulation and compliance initiatives can become a barrier to MSMEs aiming to cater to the global market. Conversely, the disruptive nature of technological innovation can make future enterprises vulnerable to unreliable markets, which can only be countered with farsighted regulation.
Collaboration recommendations
The government, thus, plays a critical role enabling the digital ecosystem. Adoption of new technologies and creating regulatory backing and providing financial support for start-ups can be a primary step. The Indian Ministry for Electronics Information and Technology (MeiTy) recently released a strategy for blockchain technology that will overlook distributed ledger technologies. As Malaysia also aims to introduce blockchain by 2025, this becomes an area where regional collaboration on strategies can be introduced. Such a move will assist directly the issue of financial aid by reducing opportunity costs.
The Indian government has also introduced the Government e-Marketplace (GeM). This venture sets up a common platform for wholesalers and retailers. Currently, 25% of the sellers on the portal are MSMEs accounting for more than 40% of the project sanction orders issued to MSMEs and projects amounting to more than Rs1,000 crores reserved for MSMEs. Malaysia’s e-marketplace policies already cover half the ground by stating most reliable platforms. This can be augmented by aligning with the Indian government’s system of GeM, which can be expanded to help MSMEs in Malaysia counter the main issues in e-marketing akin to fake imaging, user access, fair pricing and advertising.
The Indian government has also initiated formalisation processes for registration of MSMEs, creating a reliable marketplace and following the reliable method of government procurement. These ventures, Udyam, MSME Sampark and MSME Samardhan respectively, have all allowed MSMEs to function with older, larger, and well-established organisations without losing advantages because of bureaucratic hurdles.
Shravishtha Ajaykumar is associate fellow, Centre for Security, Strategy and Technology, ORF India and Mihir Sharma is director, Centre for Economy and Growth Programme, ORF India
