1992, India’s Original Fintech Moment
In challenging the prevailing notion, one should acknowledge that the genesis of startups, particularly within the technology domain, transcends contemporary narratives and traces its roots back many decades. While the term "startup" may commonly evoke images synonymous with Silicon Valley or Bengaluru and the current digital era, it is essential to recognise that entrepreneurial enterprises have been integral to human ingenuity throughout successive eras.
From the Industrial Revolution to the dot-com era, the underpinning entrepreneurial ethos has consistently propelled advancements. This reorientation of perspective invites a nuanced exploration of the expansive history of startups, refuting the misconception that startup ventures, especially in technology, represent a recent phenomenon. Instead, they embody a dynamic and enduring force shaping the perpetual evolution of corporate landscapes and societal progress.
If you think that fintech in India started just few years ago, think again. For most of GenZ readers, it was actually before your birth! Today we know of stock market investments as easy as a few clicks on our phone.
The inception of the National Stock Exchange (NSE) in 1992, marked a watershed moment in the nation's financial services sector. It was the first fintech moment in Indian financial services. This groundbreaking endeavour, driven by the visionary leadership of the then-newly formed Securities and Exchange Board of India (SEBI), heralded the advent of fintech in the world of finance. The NSE's mission was clear: to dismantle the archaic, paper-based system that had long plagued the Indian stock markets and replace it with a transparent and technology-driven alternative.
At the time, the Bombay Stock Exchange (BSE) had been the epicentre of stock trading in India, but it was entangled in a web of nepotism and opacity, largely controlled by old wealth cartels. It had seen the stock market scam, which was essentially a banking scam. Harshad Mehta and others manipulated the banking system, while the narrative makes it to be a securities market issue.
The year 1991 marked a pivotal moment in India’s economic history, and one of the standout highlights was the decision to grant statutory powers to the Securities and Exchange Board of India (SEBI) in the Union Budget speech. Simultaneously, the abolition of the Controller of Capital Issues was a bold step towards dismantling the bureaucratic red tape that had long stifled the nation’s financial growth. The impact of these reforms on India’s economy cannot be overstated. The empowerment of SEBI with statutory authority ushered in an era of robust regulation and investor protection, ensuring the integrity of capital markets.
Before the advent of the National Stock Exchange (NSE) in India, stock investments operated within the confines of a cumbersome and archaic paper-based system. It was before the advent of demat days, when stock investments had physical paper. Investors had to navigate a complicated process just to obtain physical possession of their stock certificates. The physical certificates represented ownership, and obtaining them often involved a bureaucratic ordeal, with investors
having to run from one office to another, standing in long queues, and often dealing with missing or delayed certificates.
Stock trading itself was a different experience in those days. It transpired in the "ring" at the Bombay Stock Exchange. The trading floor was a chaotic scene, with traders shouting out orders and gesturing wildly to execute trades. It was a high-pressure, noisy environment where the human element often introduced room for manipulation and malpractice. Investors had to rely on intermediaries to navigate this complicated process, which sometimes led to inefficiencies and a lack of transparency.
The key innovation that NSE introduced was screen-based trading. This may seem commonplace today, but in the early 1990s, it was revolutionary. It allowed traders and investors to place orders electronically, eliminating the chaos of floor trading and paper-based record-keeping. Furthermore, NSE introduced a system of anonymous order matching, ensuring that every order was treated equally, regardless of the trader's identity or affiliations. This further dismantled the entrenched power structures that had dominated stock trading for decades. The NSE's real-time trading and settlement processes further reduced risks and provided much-needed transparency.
The NSE's contribution to the Indian financial landscape extends beyond its technical innovations. It has played a pivotal role in fostering a culture of investor protection and education. It introduced robust risk management mechanisms, ensuring that investors' interests were safeguarded in a volatile market environment. The NSE's extensive investor education initiatives have empowered millions of Indians to understand and participate in the stock market, which was once considered a domain of the privileged few.
In contrast, many advanced nations are still grappling with issues of market opacity, and the influence of old-school cartels in stock trading. Despite the proliferation of digital tools and access to substantial strategic capital pools, several so-called developed nations and markets continue to grapple with entrenched paper-based financial systems. This paradox highlights a resistance to change and a persistence of traditional practices, impeding the seamless transition to digital platforms.
The inertia within these established financial ecosystems underscores the challenges associated with dismantling deeply ingrained processes, even when the means for digital transformation are readily available. This phenomenon raises questions about the adaptability of certain developed economies to leverage the full potential of modern financial technologies, contrasting with the narrative of progress often associated with their status.
The Indian experience has demonstrated that embracing technology and transparency can not only revitalise financial markets but also make them more investor-friendly. Credit has to be given to SEBI. The creation of the National Stock Exchange was a fintech revolution ahead of its time. The NSE's legacy serves as a testament to the power of innovation and the transformative potential of fintech in the world of finance, a lesson that even advanced nations continue to grapple with today.
Dr. Srinath Sridharan - Policy Researcher & Corporate advisor
X : @ssmumba
