Another Layer In FDI Upsets Consumer Finance Plans Of Xiaomi & Oppo

In March, Oppo introduced Oppo Kash, a similar financial services model.

Nevertheless, the Chinese phone brands are keen to set up their own non-banking financial company (NBFC) which will help increase profits by allowing them to sell financial products directly to their pool of smartphone users, said people familiar with their plans.

“India is a very important market … This (rule change) will have a dampening impact,” an industry executive who is familiar with the consumer finance plans of Xiaomi said.

This is because India’s latest Foreign Direct Investment (FDI) regulations add another layer to an approval mechanism that is already burdened with bureaucracy, a lack of accountability, and fears that Chinese investors are targeting Indian companies.

Following the near-collapse of one major lender in 2018, the Reserve Bank of India (RBI) has been wary about granting such approvals and it could now go even slower.

In April, the government said it would track FDI from neighboring-country-based companies in what was widely seen as a bid to discourage Chinese firms from taking stakes in struggling local businesses amid the coronavirus crisis. China has called ‘discriminatory’ laws.

For Xiaomi and Oppo-both sources say they have been waiting for approximately a year to get an NBFC approval from the RBI-the policy comes as India ‘s smartphone shipments are expected to decline by 10 percent this year due to the slowdown led by the coronavirus.

Before the announcement of tighter regulation of foreign direct investment, would-be investors only pursued RBI approval for a shadow banking license.

Now, for those from neighboring nations, it will be a two-step process, and approval would possibly take longer to receive, say industry sources.

Alok Sonker, a partner at Indian law firm Krishnamurthy & Co, said the government needs to sign off on an entity ‘s initial capital injection before applying for a license to the central bank.

And even if the RBI were to issue an NBFC permit to those who have already applied, such as Xiaomi and Oppo, companies that collect funds from neighboring countries would face delays in their plans as they would require approval from the government.

“It raises questions about the hard-earned regulatory agility of India that had been focused on business-friendliness and one-window clearance,” Sonker said.

BUILDING THE ECOSYSTEM

According to Hong Kong-based technology firm Counterpoint Research, Xiaomi is India’s No. 1 smartphone brand which is also its largest international market. It has a market share of 30 percent based on shipments vs rival Oppo with a share of 12 percent.

Neil Shah, Counterpoint’s vice president of research, said an NBFC would give Xiaomi and Oppo access to user data and spending patterns that can be exploited to boost revenues for other services. The profit margins are calculated at 1-2 percent from their smartphone sales.

India is lucrative for Chinese players, as some have faced regulatory setbacks in other markets in Asia. For example, Xiaomi ‘s financial unit in Indonesia was forced to shut down in late 2018 due to a dispute with regulators about the type of license is required.

The consumer finance aspirations of Xiaomi and Oppo may be further delayed as worries about Chinese investment are rising more broadly in India about China’s handling of the coronavirus pandemic, industry leaders said.