Currently, over 3,000 micro, small and medium-sized enterprise (MSME) exporters across the country rely on the OPGSP facility to receive payments. Therefore, this step taken by the Reserve Bank of India (RBI) to facilitate the processing and settlement of import-export related payments is commendable to cater to the needs of the industry.
Several clauses in the new draft directives for OEIF have introduced additional responsibilities to strengthen consumer protection. For example, OEIF must ensure that the buyer is compensated prior to the delivery of goods and digital products and protected from potential liability that may arise from cross-border imports. It is also the responsibility of OEIFs to state the exact amount that can be refunded before a purchase is made. OEIFs are also responsible for establishing a reserve fund for reimbursement in the event of a dispute.
India is one of the largest export markets for services with an estimated value of services exports of US$22.52 billion (as of March 2022). The country’s thriving gig economy has been further accelerated by the pandemic-driven work-from-home culture. This has left many households and MSMEs dependent on revenue from service exports. There has been an increase in small-scale exports of services such as various life skills training and improvement programs, accounting, online web services, consulting and tuition, among others, all of which have huge potential for growth.
The draft OEIF guidelines also state that the exporter and the OEIF decide how long an exporter’s payment will take from the date the foreign buyer receives payment. Such provisions are expected to ensure better cash flow management as working capital is not tied up and provide more transparency.
As the applicability of the KYC master instructions has been expanded under the new guidelines, it will allow OEIFs to perform full-fledged KYC verification for small and medium-sized enterprises (SMEs) that are already using an existing bank account for settlements. However, there should be a good mix of digital KYC, including video verifications and physical verification. This would introduce the element of self-assessment that would ensure compliance, maintain appropriate risk management and minimize business inefficiencies.
About 65% of all transactions in the e-commerce industry involve export services, and government policy initiatives have consistently encouraged the growth of services exports. However, the term “digital products” was not clearly defined in either the draft directive or the external trade policy, and it is unclear whether “services” are covered by any of the provisions of the OEIF. This could lead to multiple interpretations in the industry with explicit exclusion of “services”, leading to a complete derailment of MSME and SME growth. This may also have long-term implications for new job creation and India’s export statistics, a significant proportion of which include such service exports.
RBI’s supportive regulatory initiatives will draw more attention to this sector and help foster collaboration between fintech players and banks as they enter this segment, which will drive innovation and provide a healthy choice for MSMEs. We are confident that the RBI will examine and provide clarification on some of the above as it will greatly contribute to the success of this program and India will maintain its leadership position in online small services exports.
(The author is the founder and CEO of moneyHOP, a cross-border neo-bank)
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