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Dubai: A Global Hub for FinTech Innovation Supported by Progressive Regulation

Posted on May 7, 2025 by Venkatesh Bhat

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Dubai is rapidly solidifying its position as a global hub for FinTech, an ascent driven by a powerful combination of strategic government initiatives, robust infrastructure, and a dynamic regulatory environment. From cutting-edge digital infrastructure to a dedicated push for technologies like blockchain and AI, Dubai is actively sculpting the future of finance. Coupled with a business-friendly regulatory framework and significant investment inflows, it is clear why FinTech leaders and start-ups are increasingly choosing Dubai as their home base. The upcoming Dubai FinTech Summit, organized by the Dubai International Financial Centre (DIFC), stands as a testament to Dubai’s commitment to cultivating a vibrant FinTech ecosystem and its ambition to lead in global financial innovation. This article explores the key regulatory and strategic factors making Dubai a fertile ground for FinTech advancement.

A Multi-Layered Regulatory Landscape

Understanding Dubai’s unique regulatory landscape is key for any FinTech operating or looking to establish a presence here. The UAE operates a multi-layered system with different regulators having distinct, and sometimes overlapping, authority across various jurisdictions.

Onshore UAE: This includes the territories of the seven emirates, along with economic free zones (excluding the financial free zones). Key regulators here are the Central Bank of the UAE (CBUAE), the Securities and Commodities Authority (SCA), and the Virtual Assets Regulatory Authority (VARA).
Offshore UAE: This comprises the financial free zones, specifically the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). These are separate jurisdictions with their own standalone rules, largely based on English common law. The regulators here are the Dubai Financial Services Authority (DFSA) in the DIFC and the Financial Services Regulatory Authority (FSRA) in the ADGM.

This structure provides a potentially advantageous landscape, allowing FinTechs to select the regulatory environment that best aligns with their business models.

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Key Frameworks and Initiatives Facilitating Innovation

Dubai’s rise is underpinned by specific strategic initiatives and regulatory frameworks designed to nurture FinTech growth.

Strategic Government Vision: Visionary plans such as the Dubai Economic Agenda (D33), We the UAE 2031, and the exemplary UAE Centennial 2071 are specifically aimed at positioning the nation as a leader in digital innovation across sectors like FinTech and Blockchain.
Financial Free Zones as Innovation Hubs:
- The DIFC is a central part of Dubai’s FinTech ecosystem, offering a conducive environment. It attracts international companies through a bespoke legal system, tax incentives, and a supportive regulatory framework.
- Both the DIFC and ADGM host dedicated innovation hubs: the DIFC Innovation Hub and the ADGM Regulation Lab (RegLab). These hubs connect start-ups with institutions, investors, and regulators. They also provide access to extensive networks, marketing and PR exposure, regulatory frameworks, regulatory sandbox schemes, and networking events. The DIFC Innovation Hub’s objective is to “raise unicorns”.
Regulatory Sandboxes: These are crucial tools for fostering innovation in a controlled manner.
- The DFSA Innovation Testing Licence Programme in the DIFC allows firms to test innovative products, services, and business models under a restricted financial services licence. It offers temporary modifications to existing rules while maintaining close supervisory oversight. The DFSA has published an explainer guide to make this process clear.
- The ADGM RegLab offers a similar regulatory sandbox environment where requirements are applied based on business model and risks.
- The CBUAE also has a regulatory sandbox, recently enhanced by the Sandbox Conditions Regulation (April 2024), permitting testing of innovative financial business models and solutions for a duration determined by the CBUAE without requiring a full licence upfront. This aligns with international best practices.
Progressive Regulatory Frameworks: The UAE has implemented frameworks specifically for emerging FinTech areas.
- Virtual Assets: The establishment of VARA in Dubai (excluding DIFC) in 2022, with a comprehensive licensing framework rolled out in 2023. VARA regulates activities like virtual asset exchanges. The SCA also issued guidelines for virtual assets. In ADGM, the FSRA has a Virtual Asset Framework. The DFSA in DIFC regulates virtual assets and connected financial services. These frameworks cover various activities, including virtual asset issuance, trading, custody, lending, and derivatives. While some crypto-related lending and derivatives are regulated, DeFi is not specifically governed. Non-fungible tokens (NFTs) are also addressed, with differing treatment across jurisdictions.
- Open Banking/Finance: The CBUAE’s Open Finance Regulation (2024) introduces an Open Finance Framework where licensed financial institutions must share customer data (with consent) and allow transaction initiation. The UAE is highlighted as the first country globally to implement a consolidated trust framework and centralised API hub for banking and insurance. In DIFC, the DFSA amended its rulebook for open banking services. In ADGM, the FSRA introduced a framework for Third Party Financial Technology Services.
- Payment Services: Regulated by the CBUAE in “onshore UAE” under various frameworks like the Large Value Payment Systems Regulation, Retail Payment Systems Regulation, and Retail Payment Services and Card Schemes Regulation (RPSCS Regulation). Cross-border payments are regulated by the RPSCS Regulation and facilitated by systems like AFAQ and Buna. The FSRA and DFSA also regulate money services in the financial free zones. The CBUAE’s Payment Token Services Regulation (June 2024) specifically licenses and supervises digital payment services including payment tokens (stablecoins).
Focus on Advanced Technologies: Dubai is actively shaping the future by promoting technologies like Blockchain and AI.
- Dubai’s Universal Blueprint for Artificial Intelligence includes the DIFC’s AI and Web3 incubator.
- Abu Dhabi’s Digital Strategy 2025-2027 aims for a fully AI-powered government.
Financial Infrastructure Transformation Programme (FIT Programme): A CBUAE federal initiative accelerating digital transformation across the financial sector through nine strategic initiatives, including CBDC, Open Finance, an Innovation Hub, and Instant Payments. Launched in 2023, it has significantly influenced the regulatory agenda.
Dubai Cashless Strategy: Launched in 2024, this initiative targets 90% cashless transactions by 2026, emphasizing secure digital payments, AI use for transactions, and robust infrastructure. This presents clear opportunities for payment-focused FinTechs.

A Thriving Ecosystem and Market Opportunity

[/fusion_title][fusion_text animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky”]Dubai offers more than just regulation; it provides a thriving ecosystem and significant market opportunities.

Strategic Location: Dubai’s location as a gateway between East and West provides unparalleled access to the Middle East, Africa, and South Asia (MEASA) region, an area with significant potential for financial inclusion and innovation.
Market Growth: The UAE’s FinTech market alone was valued at USD 3.16 billion in 2024 and is projected to reach USD 5.71 billion by 2029, showing rapid growth.
Surge in Companies and Investment: The number of active FinTech companies in the UAE has increased significantly, with approximately 61.7% headquartered in Dubai. FinTech is a dominant force in the UAE’s venture capital ecosystem, accounting for 32% of total funding volume in Q1 & Q2 2024, highlighting growing investor confidence.
Tech-Savvy Population: The UAE population is tech-savvy and eager to embrace digital banking, crypto, and cashless payments, providing a ready market for FinTech solutions.
Ease of Business: Setting up a business is made straightforward, particularly within free zones offering tax perks and easy licensing.

Navigating the Landscape

While the environment is supportive, FinTechs must also navigate the complexity of the multi-jurisdictional system and the heightened focus on Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) compliance. The UAE’s removal from the FATF grey list in 2024 underscores its strengthened efforts in this area, leading to increased enforcement actions. FinTechs must implement comprehensive compliance programmes, ideally integrating AML considerations from the outset. Regtech solutions are also being utilized by regulators to help manage growing AML requirements.

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Examples of FinTech Companies in the UAE

Mamo Pay: Offers digital payment solutions for businesses and individuals.
Tabby: A leading Buy Now, Pay Later (BNPL) provider in the MENA region.
Ziina: The UAE’s first peer-to-peer payment app, which has secured a Stored Value Facility Licence from the CBUAE.
Invest Sky & Baraka: Platforms offering investment solutions and access to global markets, catering to modern investors.
Huspy: Specializes in simplifying the home financing process.
Sarwa: A robo-advisory platform providing automated investment services. This aligns with the growing use of robo-advisers by legacy players and expected future regulation.
Beehive: A digital SME lending platform connecting businesses with investors.
NowMoney: Provides digital banking solutions focusing on financial inclusion for low-income migrant workers.
PayBy: Offers comprehensive digital payment solutions including QR code payments and mobile wallets, contributing to the cashless ecosystem.

Dubai’s strategic government initiatives, supportive regulatory frameworks, state-of-the-art infrastructure, significant investment, and advantageous location have firmly established it as a global powerhouse for FinTech innovation. The city is not merely observing the future of finance; it is actively building it, providing FinTech companies with the resources and space needed to thrive. The Dubai FinTech Summit serves as a crucial platform for the ecosystem, bringing together industry leaders, regulators, investors, and innovators to shape the next era of FinTech evolution.

For companies seeking to navigate this dynamic environment and capitalize on the opportunities, expert guidance is invaluable. Astravise Services is a management consulting company led by seasoned CFOs and CHROs, and we empower businesses to enhance financial performance, secure funding, and navigate complex financial landscapes. With a focus on strategic business growth and profitability through effective execution of innovative solutions, we support clients with financial and advisory services.

We are pleased to share that Venkatesh Bhat, our Managing Director, will be attending the upcoming Dubai FinTech Summit. Drop a message to him on LinkedIn or his email venkatesh.bhat@astraviseserv.com to learn more about how Astravise Services can support your FinTech company’s growth journey.

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Effective Strategies for Corporate Tax Savings for Startups in India

Posted on February 6, 2025 by Venkatesh Bhat

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India’s startup ecosystem is booming, with over 1.59 lakh startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as of January 15, 2025. This burgeoning sector is fueling innovation and driving economic expansion. However, startups often find it challenging to balance their finances and taxation. Startups should leverage various tax-saving strategies to minimize liabilities, reduce their tax burden, and reinvest more in growth. Here we provide our perspective and practical suggestions that startups can follow to ensure their tax exposure is minimized while staying compliant with regulations.

Tax Audit Requirement

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As per the Income Tax Act of 1961, a tax audit is mandatory for businesses or professions that satisfy certain conditions. For startups, understanding when and how to comply with tax audit provisions is crucial in avoiding these repercussions. To avoid the pitfalls of complex tax regulations, MSMEs should consider working with a qualified advisor who can handle compliance and minimize administrative burdens. Here are some of the schemes that a qualified advisor would suggest:

1. Consider the Presumptive Taxation Scheme (Section 44AD)

Indian startups below the ₹2 crores turnover cap can avail the benefits under presumptive taxation provision,Section 44AD. In this easily accessible tax scheme, they declare 8% of their turnover; however, if 95% of the total turnover is paid through digital or banking modes, the limit increases to ₹3 crores as proposed in Budget 2023, and startups are only required to declare 6% of their total turnover. This scheme benefits newly registered startups with small amounts of funding and high burn rates. It allows them to spend more time and resources building the business rather than worrying about paperwork. Following proper eligibility guidelines and holding the necessary documentation is vital to ensuring the option is effective.

2. Utilize Startup Tax Exemptions (Section 80-IAC)

Startups authorized by the Department for Promotion of Industry and Internal Trade can apply for Section 80-IAC. Startups are allowed to fully deduct their taxable profits for any three consecutive years within the first ten years of incorporation. Explore the eligibility criteria and learn how to utilize these benefits by clicking this link.

In order to qualify, a startup must be incorporated after April 1, 2016, and meet DPIIT’s recognition criteria. The purpose of this regulation was to facilitate the growth of startups during their initial phase by providing tax benefits to encourage innovation, use of research and development, and foster a dynamic entrepreneurial system in India.

In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced significant updates to Section 80-IAC of the Income Tax Act to further support the startup ecosystem in India. Previously, startups incorporated between April 1, 2016, and March 31, 2024, were eligible for tax benefits under this section. The new budget extends this period by five years, allowing startups incorporated until April 1, 2030, to avail themselves of these benefits.

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If the annual turnover of a startup is under the threshold of ₹400 crore, it qualifies for a reduced corporate tax rate of 25%. This is a huge benefit, as they are relieved of the great financial stress of paying more for tax. As less is retained, this can in turn allow firms to spend more on the expansion of the business. Alternatively, it can also lead to more investment in the innovation of the business model.

If startups have clear plans for their desired turnover and the new tax rate, they can be more competitive and profitable. It is crucial to be punctual with the compliance norms and filing of returns to earn the benefits.

4. Claim R&D Deductions (Section 35)

Eligibility Criteria: (Clear Tax)

Scientific research must be carried out in India.
Research must be approved by the Department of Scientific and Industrial Research (DSIR).
Expenses incurred must be exclusively or wholly for scientific research.

If a startup is doing any form of research or has been working on developing a new product, one of the ways to save on tax is to fill out Section 35.

It allows you to claim tax deductions by saving your existing resources. This allows businesses to reduce their taxable income and invest in highly advanced solutions.

To be eligible for the deduction under Section 35 of the Income Tax Act, you are required to fill out Form 3CK for the DSIR.

Startups can claim R&D expenses for new or enhanced technology products. Proper documentation of R&D activities and their expenses is vital in claiming such a benefit.

[/fusion_text][fusion_title title_type=”text” marquee_direction=”left” marquee_speed=”15000″ rotation_effect=”bounceIn” display_time=”1200″ highlight_effect=”circle” loop_animation=”off” highlight_width=”9″ highlight_top_margin=”0″ title_link=”off” link_target=”_self” content_align=”left” size=”3″ text_shadow=”no” text_shadow_blur=”0″ text_stroke=”no” text_stroke_size=”1″ text_overflow=”none” gradient_font=”no” gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ style_type=”default” animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” fusion_font_variant_title_font=”400″ fusion_font_family_title_font=”Poppins” font_size=”30″]5. Opt for the GST Composition Scheme (Section 10)[/fusion_title][fusion_text animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky”]The GST Composition Scheme is a simplified tax option for small businesses in India, offering reduced tax rates and easier compliance. It is ideal for businesses with turnover under Rs. 1.5 crore (Rs. 75 lakh for some states) that deal primarily in intra-state sales, like traders, manufacturers, or restaurants.

The reduced GST based on the type of business is as follows:[/fusion_text][fusion_imageframe custom_aspect_ratio=”100″ lightbox=”no” linktarget=”_self” align_medium=”none” align_small=”none” align=”none” hover_type=”none” magnify_duration=”120″ scroll_height=”100″ scroll_speed=”1″ caption_style=”off” caption_align_medium=”none” caption_align_small=”none” caption_align=”none” caption_title_tag=”2″ animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” filter_hue=”0″ filter_saturation=”100″ filter_brightness=”100″ filter_contrast=”100″ filter_invert=”0″ filter_sepia=”0″ filter_opacity=”100″ filter_blur=”0″ filter_hue_hover=”0″ filter_saturation_hover=”100″ filter_brightness_hover=”100″ filter_contrast_hover=”100″ filter_invert_hover=”0″ filter_sepia_hover=”0″ filter_opacity_hover=”100″ filter_blur_hover=”0″ image_id=”9053|full”]http://localhost/astraviseservices/wp-content/uploads/2025/02/GST-Composition-Scheme.jpg[/fusion_imageframe][fusion_title title_type=”text” marquee_direction=”left” marquee_speed=”15000″ rotation_effect=”bounceIn” display_time=”1200″ highlight_effect=”circle” loop_animation=”off” highlight_width=”9″ highlight_top_margin=”0″ title_link=”off” link_target=”_self” content_align=”left” size=”3″ text_shadow=”no” text_shadow_blur=”0″ text_stroke=”no” text_stroke_size=”1″ text_overflow=”none” gradient_font=”no” gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ style_type=”none” animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” fusion_font_variant_title_font=”400″ fusion_font_family_title_font=”Poppins” font_size=”30″]

6. Explore Government Incentives (Startup India, Make in India)

Programs such as Startup India and Make in India foster entrepreneurship by providing tax exemptions, grants, and other support. These schemes are aimed at helping registered startups grow their businesses when they need some initial assistance.

Startup’s applications under these programs allow them to get benefits like tax holidays, seed capital, and mentoring assistance.

To encourage development and growth, the government allows startups under the Startup India program to enjoy a tax-free period of 3 years within the first 10 years of operations. The Seed Fund Scheme offers funding of up to ₹50 lakh for growth in the early stage. The mentoring assistance facilitates mentorship for startups. It focuses on the appropriate strategies to adopt and the growth barriers to overcome. These strategies help startups ease their financial burden, secure funds, and accelerate their progress.

7. Maximize Depreciation Benefits

With additional depreciation provisions under the Income Tax Act, businesses can write off a larger portion of an asset’s cost early on, boosting cash flow for reinvestment. For example, startups in manufacturing or power generation can claim 20% additional depreciation on new machinery or plants.

Enhanced compliance and tax holidays (e.g., Section 80-IAC) further support growth, encouraging reinvestment in the business.

The extension of tax breaks until March 2025 shows the government’s commitment to supporting innovative startups. Startups can enhance financial performance and growth by strategically planning capital investments and monitoring policy changes.

8. Explore State-Specific Incentives

[/fusion_title][fusion_imageframe image_id=”9054|full” custom_aspect_ratio=”100″ lightbox=”no” alt=”State-Specific Incentives” linktarget=”_self” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” align_medium=”none” align_small=”none” align=”none” hover_type=”none” magnify_duration=”120″ scroll_height=”100″ scroll_speed=”1″ caption_style=”off” caption_align_medium=”none” caption_align_small=”none” caption_align=”none” caption_title_tag=”2″ animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ filter_hue=”0″ filter_saturation=”100″ filter_brightness=”100″ filter_contrast=”100″ filter_invert=”0″ filter_sepia=”0″ filter_opacity=”100″ filter_blur=”0″ filter_hue_hover=”0″ filter_saturation_hover=”100″ filter_brightness_hover=”100″ filter_contrast_hover=”100″ filter_invert_hover=”0″ filter_sepia_hover=”0″ filter_opacity_hover=”100″ filter_blur_hover=”0″]http://localhost/astraviseservices/wp-content/uploads/2025/02/State-Specific-Incentives-1.jpg[/fusion_imageframe][fusion_text animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky”]

States like Karnataka, Telangana, Maharashtra, Uttar Pradesh, and Tamil Nadu offer a range of incentives to foster a thriving startup ecosystem. These initiatives include seed funding, grants for prototyping and research, subsidies for co-working spaces, financial incentives for adopting renewable energy solutions for GCC operations, and reimbursement of taxes and patent expenses.

Karnataka- Check out Karnataka’s ELEVATE 2024 and learn more about its benefits.

Telangana- Explore Telanga’s T-Hub and its startup support programs.

Tamil Nadu Learn how Startup TN can fuel your growth.

9. Utilize Loss Carryforward Provisions (Section 72)

[/fusion_title][fusion_text animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky”]Section 72 of the Income Tax Act enables startups to take advantage of loss carryover provisions. This allows losses from businesses to be applied against profits made in the subsequent eight years. This is effective as long as the startup files tax returns for applicable income and makes payments on time under Section 139(1). The startup monitors expense records to reduce taxes and costs, boosting future profit potential.

Startups registered under DPIIT are eligible for extra benefits. These companies can extend losses incurred during the first 10 years after incorporation for an additional 10 years, compared to the standard seven years. Also, even if there are changes in shareholding during the 10 years, the benefit still exists if the owner, who held more than 51% throughout the year the loss sustained.[/fusion_text][fusion_title title_type=”text” marquee_direction=”left” marquee_speed=”15000″ rotation_effect=”bounceIn” display_time=”1200″ highlight_effect=”circle” loop_animation=”off” highlight_width=”9″ highlight_top_margin=”0″ title_link=”off” link_target=”_self” content_align=”left” size=”3″ text_shadow=”no” text_shadow_blur=”0″ text_stroke=”no” text_stroke_size=”1″ text_overflow=”none” gradient_font=”no” gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ style_type=”none” animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” fusion_font_variant_title_font=”400″ fusion_font_family_title_font=”Poppins” font_size=”30″]10. Regularly Review Tax Laws and Seek Expert Advice[/fusion_title][fusion_text animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky”]

Tax regulations evolve frequently, making it crucial for startups to stay updated to remain compliant and maximize their benefits. Collaborating with the right tax professionals can be a game changer.

Astravise Service’s expertise in financial strategy directly aligns with effective corporate tax-saving strategies for startups in India. By streamlining operations and providing actionable insights, we ensure startups minimize tax liabilities while staying compliant.

Astravise Services offers tailored, industry-specific financial strategies to address unique challenges and opportunities. Through detailed discussions, we create bespoke plans that optimize tax savings, leverage incentives, and align operations with growth goals for long-term success. Partnering with Astravise Services enables your startup to focus on growth while maximizing savings through strategic financial and tax planning.

Connect with us today to craft a financial strategy that propels your startup toward sustainable growth!

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2024 MSME Crisis: Strategies for Sustainable Growth

Posted on January 13, 2025 by Venkatesh Bhat

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The MSME sector in 2024 is at a critical turning point, with businesses navigating challenges like funding constraints, scaling hurdles, and technological transitions. As enterprises adapt to changes, numerous stories of perseverance and innovation emerge in India. They emphasize a shared opportunity, despite varying causes. The opportunity is to unlock a new age of growth and pave the way for a brighter future, by refining strategies and embracing upcoming technologies.

The sector has grown stronger by leveraging government initiatives and adapting to significant changes in the economic landscape. MSMEs are now poised to drive India’s economic growth, create jobs, and contribute to global markets. This resilience underscores the indomitable spirit of Indian enterprises, as they build a future defined by adaptability, innovation, and collaboration.

Recent data from the Ministry of Micro, Small & Medium Enterprises (MSME) indicates that Indian MSMEs have been severely affected by the second financial downturn. Official statistics show that since 2022, more than 61,000 MSMEs have closed, with over 12,000 closures occurring in the past four months alone. Regions like Maharashtra, Tamil Nadu, and Uttar Pradesh have experienced some of the highest numbers of shutdowns, highlighting the widespread nature of this crisis.

The total count of MSMEs closed in different states | Data Source: Financial Express

According to MSME Minister Jitan Ram Manjhi, closures have been linked to changes in company ownership, redundant certifications, and duplicate registrations. These administrative hurdles have made it difficult for some businesses to sustain operations.

The reasons behind these closures are multifaceted. They are as follows:

Increasing Operational Expenses: Inflation has caused a substantial increase in the costs of raw materials, energy, and logistics. This, combined with decreasing consumer demand in major sectors, has resulted in an unsustainable cost structure for many MSMEs.
Technology and Scalability Challenges: Many MSMEs struggle to implement new technologies and achieve significant growth. Their lack of access to affordable R&D facilities impedes their ability to innovate and stay competitive.
Poor Financial Planning: A lack of structured financial planning, including effective management of working capital and cost efficiencies, has left numerous businesses vulnerable to external pressures.
Global and Macroeconomic Influences: Ongoing geopolitical instabilities and a slowdown in the world economy have undermined investor confidence and disrupted supply chains, making it difficult for MSMEs to sustain their operations.
Inadequate Infrastructure: A significant number of MSMEs are located in regions with insufficient road networks, unreliable electricity supply, and limited access to water and sanitation services. These shortcomings elevate operational expenses and diminish productivity, posing challenges for MSMEs when competing with bigger businesses.
Regulatory Compliance: MSMEs encounter intricate and burdensome regulatory frameworks that involve numerous approvals and compliance obligations from different government agencies. The frequent alterations in regulations create an additional layer of difficulty, making it challenging and confusing for MSMEs to remain informed and compliant.
Access to Credit and Lending Practices: Many MSMEs struggle to secure timely and adequate credit from banks and other financial institutions. Factors such as insufficient collateral, a lack of comprehensive financial documentation, and unfavorable credit ratings contribute to this challenge. Consequently, a large number of MSMEs remain undercapitalized, which limits their growth capabilities and competitiveness.
Issues with Credit Lenders: MSMEs face various challenges when dealing with credit providers. High interest rates, stringent lending criteria, and the economic impacts of global downturns can limit their access to crucial funding. Such obstacles often create a significant credit gap, leaving many MSMEs without the financial resources they need to thrive.

Impact of MSME Closures in India

The closure of MSMEs in 2024 has had a considerable impact on local economies, employment rates, and the overall manufacturing output in India, with more than 61,469 MSMEs reported to be shut down since the Udyam Registration portal’s launch, resulting in a job loss of 317,641 by July 2024. This downturn not only jeopardizes the income of millions but also disrupts local economies, as MSMEs are responsible for around 40% of India’s manufacturing output and are vital for job creation. The reasons for these closures include escalating operational expenses, low demand, competition from inexpensive imports, and regulatory challenges.

Key Initiatives for MSME Support in Union Budget 2024

In the 2024 Union Budget, the Indian government unveiled several significant initiatives aimed at assisting MSMEs. These initiatives include the Credit Guarantee Scheme for loans without collateral, an increased Mudra Loan Limit under the ‘Tarun’ category, and a reduced TReDS Onboarding threshold to boost liquidity. Furthermore, there is provision for struggling MSMEs to secure ongoing bank credit, the establishment of E-Commerce Export Hubs to facilitate access to international markets, and the creation of 12 plug-and-play industrial parks as part of the National Industrial Corridor Development Programme to lower operational costs. The Reserve Bank of India (RBI) has implemented initiatives to support MSMEs, including Priority Sector Lending (PSL) guidelines that mandate banks to allocate a portion of their lending to these enterprises. Additionally, the RBI has introduced programs to improve credit access, such as linking loans to external benchmarks for better monetary policy effectiveness. These policies are designed to promote growth and sustainability within the MSME sector, acknowledging its essential role in India’s economic progress.

How Astravise Services Can Support MSMEs:

Astravise Services offers customized CFO and CHRO solutions that include fundraising assistance, that is designed to address the specific challenges faced by MSMEs in the current economic landscape.

Strategic Financial Management: Astravise Services’ CFO services assist MSMEs in optimizing their cash flow and managing working capital effectively thereby extending their financial lifespan. Strong financial strategies, backed by our expertise, empower businesses to achieve profitability while strategically allocating resources for growth.

Furthermore, we provide fundraising assistance by guiding companies in improving their financial performance and developing a robust action plan to attract and manage investor confidence.

Regulatory Compliance: We also help MSMEs navigate complex regulatory environments by streamlining the processes and providing guidance on compliance requirements. This includes assistance with obtaining necessary certifications, maintaining up-to-date records, and leveraging your MSME certification to its full extent.

Enhancing Operational Effectiveness: MSMEs can greatly reduce expenses by optimizing their operations and adopting lean practices. We offer expert advice in cost optimization and re-evaluating business processes for utmost efficiency.

Workforce and Organizational Strength: The CHRO services aim to build strong organizations through workforce planning, skill training, and employee engagement initiatives. Retaining and motivating essential talent is crucial for business survival and development during uncertain times.

Embracing Technology and Innovation: We assist MSMEs in utilizing cost-effective technological solutions to boost productivity and scalability. From digital transformation efforts to collaborative research and development opportunities, these strategies prepare businesses for sustained success.

Recognizing the budgetary constraints often faced by MSMEs, we prioritize flexibility and customization in all our service offerings. This ensures that you receive the highest possible value within your budget. Schedule your free consultation today and explore how our tailored solutions can effectively address your specific business needs and contribute to your growth journey.

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Plan for the plan, not going as per plan

Posted on October 3, 2024 by Venkatesh Bhat

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I spent months researching and curating an itinerary for a family vacation a few years back. The unexpected happened – the most reputed travel agency messed up the bookings and we ended up cutting the trip short.

We have all faced some version of this problem in our finances too. The unfortunate reality of the chaotic world around us is that – nothing is 100% guaranteed; even the most unlikely scenario can play out at any time. Morgan Housel, in his book “The Psychology of Money,” points out that

financial wisdom is in recognizing that our financial plan needs to survive in reality filled with uncertainty – and therefore it is necessary to build a margin of safety.

Financial prudence lies in not putting all eggs in one basket.

Just the way people plan their personal finances, businesses too have a plan. For example, a business targets Rs. 1 crore in revenue and Rs. 30 lakh net profit in one year. The business plan to accomplish this goal would include product/services, customer purchase goals, employee count and operating costs for the specific period.

However, the probability that the business will meet these targets exactly is low. Many different factors can affect a business’s ability to hit these target numbers. Some external factors tend to be impossible to anticipate and account for (this pandemic is the best example). Therefore, to make a plan that can guide a business despite many such factors, the plan needs to consider scenarios where things may pan out quite differently.

It is more complex than simplistically creating two plans:

an aggressive Plan A
a watered-down Plan B.

Looking for

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Finance Advisory, Managed HR Services

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Reach Us!

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We come across many businesses that fail to understand this fully. They continually operate based on a strategy designed keeping in mind redundant factors, despite evidence pointing to the fallacies in the plan. These businesses tend to run out of cash quickly and fail to attract investors.

Considering the risk involved, lenders also may be hesitant to step in. Those few businesses that manage to pick themselves back from this perilous position face a new set of hurdles – as they have lost precious time and the competition has moved miles ahead.

There is a textbook solution to avoid this classic trap.

First, build multiple business growth scenarios and assign probabilities to each of them.
Then, push the team towards the most optimistic higher probability scenario.
Be fully prepared for the full spectrum of high probability scenarios.
If possible, work on risk mitigation simultaneously.

When the product/service is unique, the team is new, and the business has yet to establish a target audience – how can one create scenarios and assign probabilities?

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MSME Sector Lending Trends – 2024

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Unfortunately, employing this technique in a new business or startup is extremely difficult and impractical. This technique is not useful in the absence of historical insights and experience in a similar business. In our interactions, while many business leaders understand the need for a well-structured business plan that prepares them for the unpredictable world, they need to juggle multiple responsibilities associated with running the business. They often lack the time and industry experience needed to create and modify such a plan. Firms like Astravise Services can step in and provide the necessary assistance needed in situations such as these.

Based on our previous experience assisting start-ups, we have compiled a few guidelines that can help in navigating the choppy waters of business planning:

Business Plan Based on Lead Indicators: Do not build only a financial projections spreadsheet. It is better to ensure the team has a clear understanding of the lead indicators of the business and formulate a plan based on that. For example, data analysis may reveal synchronized movement between the number of customer complaints and subsequent customer churn percentages. Business plans should consider these data points while building a robust customer life cycle pattern.

Test the Markets with a Minimum Viable Product:
To avoid running out of resources during experimentation, test the market with a “Minimum Viable Product”. It lowers the risk of losing time and money and allows making provisions for the next experiment if the MVP gets rejected in the market.
Build “Early Warning Systems”:
Business should track industry developments that provide early indications of failing business assumptions. Business plans should identify possible “red flags” – indicators that signal a negative deviation from the plan trajectory.
Strengthen Your Core Team:
Your core team must be well-equipped to navigate your business despite uncontrolled variables. “Pivoting” or changing direction of strategy is a part of startup life.
Plan Flexible Cashflow:
- Keep as many costs as possible in a variable mode, i.e., avoid fixed costs and examine how to convert an apparent fixed cost into a variable cost structure.
- Go full throttle on spending after keeping a sufficient cash buffer – no risk is worth taking if it is likely to wipe you out. Build room for error.
- Businesses are most vulnerable in front of investors or talent markets when they do not have a rainy-day fund saved up.

Let us consider a slightly different category of events – those that have never occurred in the past can be catastrophic but can be identified by applying thought -so called “Single Points of Failure”. For example, business takes a factory situated in a low-lying area of the city and heavy rains damage the factory, machinery and goods. Or the only good code-writer in the company gets hospitalized for months and has not kept his work so that anyone else can take over. Business plans should consider such possibilities and try to build buffers to reduce the impact of such events.

To conclude, planning is a complex process that must factor in different uncertainties and thoughtfully build flexibility. In other words, the most crucial part of every plan is to plan for the plan, not going according to plan.

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Working Capital Management: The Key to Business Success

Posted on September 10, 2024 by Venkatesh Bhat

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Working capital management is an essential component of successful business operations. It ensures that organizations have sufficient liquidity to meet their short-term obligations and invest in growth opportunities. As a critical aspect of financial management, working capital management is a focal point for businesses seeking to improve cash flow, reduce costs, and enhance profitability.

Efficient working capital management can significantly improve the profitability of Indian companies. According to a study by the Confederation of Indian Industry (CII), Indian companies that effectively manage their working capital can achieve a 20-30% improvement in their return on capital employed (ROCE).

With the strategic help of virtual CFO services like Astravise, startups and SMBs can effectively manage their working capital and accelerate growth.

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What is Working Capital Management?

Working capital management involves the administration of a company’s current assets (such as cash, accounts receivable, and inventory) and current liabilities (including accounts payable and short-term debt). Working capital management aims to maintain an optimal balance between these components, ensuring the company can fulfil its short-term obligations while funding long-term, necessary investments for growth.

Funding Working Capital

Companies use internal accruals or invested capital to fund working capital or borrow short-term loans. Usually, it is a combination of these sources. A strong balance sheet enhances the ability of the business to secure debt funds from the market. Young businesses need help to secure external debt; they rely on equity capital to fund working capital. Their ability to manage working capital optimally is highly critical to their survival.

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The Importance of Working Capital Management

Effective working capital management is critical for businesses to achieve financial stability and growth. A few key reasons for its importance include:

Liquidity: Maintaining sufficient liquidity is crucial for businesses to meet short-term financial obligations, such as paying suppliers, employees, and lenders. Effective working capital management ensures organizations have adequate cash flow to cover these expenses without relying on external financing.
Operational Efficiency: Proper working capital management allows businesses to optimize their operations by efficiently managing inventory levels, accounts receivable collection, and accounts payable. This helps to minimize costs, improve cash flow, and enhance overall profitability. On the other hand, there are many instances of start-ups and small & medium enterprises mismanaging the

Growth Opportunities: By optimizing the utilization of working capital, businesses can free up resources to invest in growth opportunities, such as entering new markets, launching new products, or acquiring competitors. Without effective working capital management, organizations may miss out on these opportunities due to a lack of funding.
Agile operations: Businesses benefit when their supply chain management incorporates lean inventory and strategic vendor management practices. Active working capital management is at the heart of agile operations, allowing businesses to adapt quickly to sudden supply or demand shifts.
Creditworthiness: A sound working capital management strategy can help businesses maintain a healthy financial position, which is crucial for securing financing at favourable interest rates. Lenders and investors often assess a company’s working capital management practices to evaluate its creditworthiness and financial stability.

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Factors Affecting Working Capital Management

Several factors impact the working capital management requirements of a business:

Company Size and Structure: Larger organizations typically require more working capital to manage their operations. The complexity of a company’s structure also influences its working capital needs.
Industry and Market situations: The working capital requirements of a business can vary significantly depending on its industry and market conditions. For instance, companies operating in seasonal industries or highly competitive markets may require more working capital to manage fluctuations in demand and supply. When COVID upended supply chains and choked existing working capital lines, many businesses struggled to cope. Astravise has assisted its clients in rethinking their supply chains and securing local supplies while keeping inventory manageable, given the fluctuations in the retail consumer markets. In another instance, securing revenue-based financing to manage the expected increase in business was the only logical option for a client. However, it also meant managing working capital levels so that business generated cash to repay the loans.
Business Strategy: A company’s long-term strategic goals can impact its working capital management practices. For example, aggressive growth strategies may necessitate more significant investments in working capital, while cost-cutting strategies may focus on optimizing cash flow and reducing working capital requirements.
Interest Rates: Prevailing interest rates can influence a company’s working capital management decisions. High-interest rates can increase the cost of borrowing, prompting businesses to optimize their working capital utilization to minimize financing expenses.

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Components of Working Capital Management

Working capital management encompasses several core elements:

Cash Management: Ensuring that a company has sufficient cash to meet its short-term obligations and unexpected expenses is critical to working capital management. This involves optimizing cash inflows and outflows, managing cash reserves, and accessing short-term financing if necessary.
Accounts Receivable Management: Efficiently managing accounts receivable helps businesses improve cash flow by reducing the time it takes to collect customer payments. Effective strategies include offering early payment discounts, implementing strict credit policies, and regularly monitoring and following up on outstanding invoices.
Inventory Management: Proper inventory management ensures that businesses have adequate stock levels to meet customer demand without incurring excessive storage and obsolescence costs. This involves implementing inventory control systems, utilizing just-in-time inventory management techniques, and conducting regular inventory audits.
Accounts Payable Management: Managing accounts payable involves negotiating favorable payment terms with suppliers, taking advantage of early payment discounts, and ensuring timely payments to maintain strong supplier relationships. This helps businesses optimize their working capital by extending the time to pay their suppliers.
Short-term Financing: Accessing short-term financing, such as lines of credit or trade credit, can help businesses manage temporary working capital shortfalls. However, external financing can increase interest expenses and expose the company to additional financial risks.

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Risks of Poor Working Capital Management

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Inefficient working capital management can expose your business to several potential risks:

Cash Flow Problems: Insufficient working capital can result in cash flow shortages, making it difficult for businesses to meet their financial obligations and invest in growth opportunities.
Reduced Profitability: Poor working capital management practices can lead to increased costs, such as higher borrowing expenses, excessive inventory carrying costs, and lost early payment discounts, negatively impacting profitability.
Damaged Supplier Relationships: Failure to pay suppliers on time due to inadequate working capital management can strain supplier relationships and lead to supply disruptions.
Limited Access to Financing: Businesses with poor working capital management practices may struggle to secure financing at favourable interest rates, as lenders and investors may view them as high-risk borrowers.

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Strategies for Effective Working Capital Management

To optimize working capital management, businesses should consider implementing the following strategies:

Regular Financial Analysis: Monitoring critical financial metrics and regularly reviewing working capital management practices can help businesses identify inefficiencies and opportunities for improvement.
Leverage Technology: Implementing advanced software solutions and automation tools can streamline working capital management processes, improve visibility into cash flow, and enhance decision-making capabilities.
Optimize Payment Terms: Negotiating favorable payment terms with suppliers and customers can help businesses extend their cash conversion cycle and improve working capital efficiency.
Implement Robust Risk Management Practices: Comprehensive risk management policies and procedures can help businesses identify and mitigate potential risks associated with working capital management, such as late payments, inventory obsolescence, and supplier insolvency.
Leverage Virtual CFO Services: Engaging virtual CFO services, such as Astravise, can provide startups and SMBs with expert financial guidance and support in managing working capital, enabling them to grow and scale faster.

Looking for

Finance Advisory, Managed HR Services

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Reach Us!

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The Role of Virtual CFO Services in Working Capital Management

Virtual CFO services, such as those offered by Astravise, can play a crucial role in helping startups and SMBs optimize their working capital management practices. By providing expert financial guidance and support, virtual CFOs can assist businesses in implementing effective working capital management strategies, streamlining processes, and improving overall financial performance.

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Companies find it challenging to assess business risks on their own for a variety of reasons. Follow the link to more about the types of risk assessment in various businesses

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Some key benefits of engaging virtual CFO services for working capital management include:

Expert Financial Analysis: Virtual CFOs can conduct in-depth financial analysis to identify opportunities for working capital optimization and provide actionable recommendations for improvement. It is our experience that most companies have hidden inefficiencies in their working capital cycle – in case of a logistics player, there was a delay of six working days from the time of the work completion and raising of invoices. This was on account of various factors – by devising and running separate projects for each of these causes of delay, the delay was significantly.
Customized Strategies: Virtual CFOs can develop tailored working capital management strategies based on a company’s unique financial situation, industry, and strategic objectives. In specific cases, Astravise helps in devising the right mix of debt funds from multiple players, optimizing the cost of funds as well as repayment commitments.
Emerging Trends in Working Capital financing: Several new players have come up with flexible working capital facilities in the last few quarters. Virtual CFO services can assist businesses in identifying the right product and lender that match the client’s business requirements.
Ongoing Support and Monitoring: Engaging virtual CFO services ensures ongoing support and monitoring of working capital management practices, enabling businesses to make timely adjustments and maintain optimal financial performance. For Example, for specific client’s, Astravise continues to communicate and share information with the lenders post disbursal and provides periodic business updates to the lenders ; This ensures that lenders have a proper perspective about the business progress.

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Conclusion

Effective working capital management is essential for businesses to achieve financial stability, operational efficiency, and growth. You can optimize your cash flow, reduce costs, and enhance profitability by implementing sound working capital management strategies.