India's decision to scrutinise Chinese investments closely over fears of possible hostile takeovers has caused smartphone manufacturers some jitters. Especially for those from across the border who are having to stall their direct lending schemes in the country.
While Xiaomi had launched its online lending service MiCredit last December, another Chinese brand Oppo had followed suit with Oppo Kash in March, barely days before the Covid-19 led lockdown was imposed in India.
These two smartphone brands together claim more than 100 million users in India and now their plans to expand credit to prospective buyers may go into cold storage as the federal government rules state that without a shadow banking license or without a partnership with Indian financial institutions, no entity can lend directly to consumers.
In addition, the foreign direct investment rules have also been modified to add an extra layer in the approval process in case the Chinese smartphone brands consider coming up with their own non-banking financial companies (NBFCs).
A report published in the New York Times credited to Reuters said with government monitoring FDI from Chinese companies more carefully, the chances of Chinese NBFCs getting approvals from the Reserve Bank of India appear less likely now than it was before the Covid-19 pandemic came to the fore.
With shipments likely to decline in the current year by 10 percent, as suggested by various research firms, smartphone makers would be looking to create their own lending mechanisms as tying up with other banks would add a further squeeze on margins.
Technology research firm Counterpoint has suggested that Xiaomi, for whom India is the largest market in the world, would get access to user data and spending patterns if it were to have a lending arm. This data could be monetised in multiple ways to boost revenues from other services.
Besides the challenge of hostile takeovers that was brought to the fore by Rahul Gandhi, leader of the opposition Congress party in the lower house of Parliament (Lok Sabha), there is also concern among a section of the consumers over the manner in which China handled the Covid-19 attack in the early stages.
So, by the looks of things at this juncture, it appears as though the Chinese smartphone makers would have to do without a lending arm that could replace local banks and help them save a few dollars more from the margins.
Via: New York Times
