Social ,16 Apr 2025

Fintech Startups Seek ₹1,000 Crore Government Fund Amid Funding Crunch

India’s fintech ecosystem, once the darling of venture capital, is now navigating choppier waters. Facing a notable funding slowdown, several leading fintech startups are urging the government to set up a dedicated ₹1,000 crore support fund to keep innovation and financial inclusion on track. The request signals both the urgency and importance of maintaining momentum in a sector vital to India’s digital economy.

 

The Funding Winter in Fintech

Fintech startups, which raised billions during the pandemic-driven digital boom, are now seeing a pullback from investors. According to recent data, funding in India’s fintech sector dropped by over 35% in Q1 2025 compared to the same period last year. A combination of global macroeconomic uncertainty, high interest rates, and tightening regulatory norms have made investors more cautious.

Early-stage fintechs and those focused on underserved markets — such as rural lending, microinsurance, and digital banking for the unbanked — are finding it particularly difficult to raise capital. Many are operating in survival mode, cutting marketing budgets, delaying product launches, and reducing staff.

 

What the Startups Are Demanding

In a recent letter to the Ministry of Finance and NITI Aayog, a group of prominent fintech founders and industry bodies have proposed the establishment of a ₹1,000 crore Fintech Development Fund (FDF). The fund, they argue, would:

1. Provide bridge financing and working capital support to struggling fintechs.
2. Help startups focused on financial inclusion, digital lending, and Bharat-first solutions stay afloat.
3. Offer matching grants and low-interest credit lines for innovation in regtech, insuretech, and embedded finance.
4. Encourage partnerships with government-led platforms like UPI, ONDC, and Account Aggregators.

 

How the Fund Could Work

The proposal suggests that the fund be administered by a special committee under the Department of Financial Services, with active participation from SIDBI, NPCI, and key private sector stakeholders. It could operate through:

1. Grants and loans to startups meeting certain criteria (stage, compliance, innovation).
2. Equity support via co-investment models with VCs and incubators.
3. Incentives for rural and Tier II/III-focused fintechs, promoting inclusive innovation.

 

The Broader Impact of the Crunch

This funding crunch isn't just a startup problem. India's fintechs serve over 600 million users, enabling low-cost payments, credit, insurance, and wealth management. A slowdown in this sector could:

1. Stall progress toward India’s financial inclusion goals.
2. Disrupt services for MSMEs and rural users relying on alternative credit scoring models.
3. Affect employment in the startup ecosystem, which currently supports over 1.5 million direct and indirect jobs.

 

Government’s Possible Response

While there’s been no official confirmation, senior officials in the Ministry of Electronics and IT have acknowledged the fintech sector’s importance and hinted at “structural support discussions” underway. The government has previously supported tech innovation through schemes like the Startup India Seed Fund, and many in the industry believe fintech deserves a dedicated mechanism, given its systemic impact.

Expert Take

“The fintech sector is critical for India’s journey toward becoming a $5 trillion economy. A targeted fund can help bridge the funding gap and ensure that innovation continues to thrive even in difficult times.”
— Rajan Anandan, Peak XV (Sequoia India)

 

Conclusion

India’s fintech story has been one of bold innovation, global admiration, and deep impact. But innovation needs fuel — and with private capital turning cautious, government intervention could be the key to sustaining the sector’s growth and inclusiveness.

The proposed ₹1,000 crore fund may not just rescue startups — it could be the catalyst that shapes the next phase of India’s digital financial revolution.