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Indian Stack can be leveraged for crypto investments, lending to SMEs: iSpirt

In a recent blogpost, the Indian Software Product Industry RoundTable (iSpirt) said that the India Stack project can be used to “help connect the trillion-dollar cryptoeconomy to capital-hungry Indian entrepreneurs.” This was followed by another blogpost by tech-investor Balaji Srinivisan who said that the India Stack can support the digital rupee ambitions and enable Indians to use either digital currencies or crypto-currencies interchangbly.

Little information has trickled out on what the government and Reserve Bank of India’s (RBI) planned crypto-bill and Central-Bank Digital Currency will look like, ever since the news broke over two months ago. Some hints have been dropped along the way, like the Finance Ministers’ ‘calibrated‘ approach comment, a change in company disclosure rules and the RBI’s musings’ on its Digital Rupee project.

Both blogs have advocated the use of the India Stack to enable crypto-investments and lending to SMEs in the country. While iSpirt said that crypto-currencies present a “unique opportunity to close the SME financing gap” which stands between  $250 to $500 billion, Srinivisan said that by combining India Stack and the Digital Rupee to the crypto-universe, India will have a “a domestic digital currency fully controlled by the RBI  and international payments capability that isn’t controlled by any other country.”

Major public digital projects part of the India Stack program were developed by “volunteers” working with iSpirt and other organisations in the past decade. These include the Aadhaar program, Unified Payments Interface, e-KYC, Digital Locker, the Data Empowerment and Protection Architecture, among others.

Accessing global capital

iSpirts’ former “mentor” and non-executive chairman of Infosys, Nandan Nilekani recently stated that SMEs should access the global crypto-currency market for capital and that the government should regulate cryptos as an asset. The think tank so far has been working on a new project called the Open Credit Enablement Network (OCEN) which will allow any SME in the country to access loans based on their business cash-flows and Goods and Services Tax (GST) invoices.

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Recently, the Ministry of Corporate Affairs amended the Companies Act, 2013 mandating companies to disclose their crypto or virtual currency holdings and transactions as part of their annual financial statements for this fiscal. According to legal experts, this move signaled that the government was treating cryptos as assets on the books of companies and that it has for the first time legally recognised crypto-exchanges and cryptos.

In its blogpost, the think-tank said that crypto-currency capital can be funneled through special structures for SMEs.

“Inflows of cryptocurrencies from KYC-ed investors through approved Indian and global exchanges can potentially be allowed into India for the purposes of enhancing SME access to low-cost global capital. GST-registered companies could, for instance, receive capital against their issued e-invoices and other information collateral in special accounts opened via a controlled conduit such as GIFT city, which is one of India’s favored bridges to international markets”—iSpirt Blog

iSpirt said that while India’s crypto-universe is still small, it is growing at rapid pace and is worth $2 trillion today. “This is a new source of risk-tolerant digital capital that could flow into India to help close the SME financing gap, if we can make it an attractive proposition for the global investor,” it added.

Build a Crypto India Stack

Srinivasan said that the decentralised finance (de-fi) market, or financial products like insurance and lending on a blockchain using crypto-tokens, was only $1-2 billion  last year and is now worth 25x of that. He explained that some of these de-fi lenders require cryptos as collateral, some do not while newer entrants use “informational collateral” such as data on cash flowsn to underwrite loans.

Srinivasan also said that Indian startups can use a “Crypto IndiaStack” to raise crypto crowdfunding rather than going down the venture capital route, while students and first-time entrepreneurs can mint personal tokens that friends and family invest in. He added that the India Stack can also ensure that Indians use cryptos for foreign remmittances instead of “PayPal” and other companies.

“India should champion national stacks and decentralized crypto protocols as a way to (a) allow countries to gracefully reduce their dependence on both American and Chinese tech companies, (b) earn hard currency for the Indian state and Indian citizens, and (c) develop India’s reputation as a peacemaker, a neutral third party, a software superpower, and a global facilitator”—Balaji Srinivasan 

How to leverage India Stack

Decentralised finance offers much better peed of transactions, cost of transactions, transparency and enforcement of contracts than tradition finance, Srinivisan said. “The ability to write programs with money is as big a breakthrough as the ability to write programs with documents. It gives Wall Street’s capabilities to anyone – including the average Indian – without expensive lawyers or financiers,” he added.

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“Any computer running the IndiaStack open source digital wallet would then be able to download digital rupees and send them to any other computer running the digital wallet, potentially without going through a bank or fintech intermediary. Each such transaction could work much like the current UPI, with instant payments between wallet holders, though many concepts from blockchains could be used to protect user security, such as local private keys”—Balaji Srinivasan 

Srinivisan highlighted a few steps on how the India Stack can be used to support cryptos:

  1. Connect a digital wallet to India Stack
  2. Extend Jan Dhan through the India Stack digital wallet
  3. This will be supported by the Digital Rupee issued via UPI
  4. Digital Rupee can be issued to persons verified through Aadhaar and e-KYC Application Program Interfaces of the India Stack
  5. These can also be crypto exchanges, fintechs, and banks for INR to digital INR conversion
  6. Extend the India Stack domestic APIs to blockchain and connect them to international crypto protocols
  7. The India Stack digital wallet can support UPI Digital Rupees and Bitcoin, Ethereum, and other digital assets

On the otherhand, iSpirt said that a new system can be created between SMEs, crypto-exchanges, regulators and investors across the globe.

“The companies benefiting will need to explicitly consent to sharing their information and receiving funds into a new account at system-level while capturing cash flows against invoices for repayment. Inflows of global crypto-capital into Indian SMEs could also enable the rest of the credit system to migrate to informational collateral-based lending. And the special account could eventually be ported to a wallet backed by a national digital currency, such as the proposed digital rupee”—iSpirt Blog

Effectively, the RBI’s Digital Rupee will act as a stablecoin and will be used for all crypto-investments and withdrawals. This would allow regulators and tax authorities to keep track of who is buying and sell cryptos, and which entities are authorised to do so.


MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.

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