India in focus: LEI mandates as a growth driver for SMEs

27 May 2022

The increased use of the Legal Entity Identifier (LEI) in India opens new doors for small and medium-sized enterprises (SMEs) in global trade and finance. The LEI, a unique identifier for businesses, is gaining traction by promoting trust and transparency in international transactions. For the first time, this opens up far-reaching opportunities for Indian SMEs to compete in global markets.

The growing importance of the LEI in India

In recent years, various regulatory authorities in India have been promoting using the LEI. These measures aim to increase trust and transparency in the economy. For India’s economy, which is heavily characterised by small and medium-sized enterprises (MSMEs), more and more companies can validate their identity internationally, opening up new trade and financing opportunities.

Regulatory initiatives drive LEI usage.

India has been actively promoting the introduction of the LEI. The Reserve Bank of India (RBI) was one of the first to make it mandatory. Since 2017, market participants in over-the-counter (OTC) markets for rupee interest rate derivatives, foreign currency derivatives, and credit derivatives have been required to have an LEI. The LEI has also been mandatory for large corporate borrowers since the end of 2019 if they wish to apply for or extend credit facilities of over 50 crore rupees.

In 2021, the RBI introduced the LEI for payment transactions of 50 crore rupees and above to increase the transparency of cross-border payments. Since October 2022, the LEI is mandatory for cross-border capital or current account transactions of 50 crore rupees and above.

The Securities Exchange Board of India and the Insurance Regulatory and Development Authority of India (IRDAI) have also promoted using the LEI to improve market transparency and minimise risks.

Growing demand for LEIs

As a result of these regulatory measures, the demand for LEIs in India has increased significantly. According to the Global Legal Entity Identifier Foundation (GLEIF), India has been one of the countries with the fastest growth in LEI issuance in recent years. By the end of 2021, over 76,000 LEIs had been issued in India. This trend is set to continue as more and more companies are required to apply for the LEI.

GLEIF’s Registration Agent Programme plays a crucial role in meeting this growing demand. Registration agents help companies simplify and speed up the process of applying for and managing their LEIs. They provide expert support and make it possible to overcome registration hurdles. This enables companies to obtain a trusted and globally recognised identity more quickly. This is particularly important for SMEs, which often need more resources to manage complex application procedures independently.

With the support of registration agents, SMEs can more easily realise the benefits of the LEI, which promotes their integration into the global economy. These agents help ensure that more businesses have access to a trusted, internationally recognised identity. This not only facilitates compliance with regulatory requirements but also strengthens the confidence of international trading partners and financial institutions in the identity and integrity of companies.

Advantages for SMEs

The introduction of the LEI offers Indian SMEs numerous advantages. An estimated 63.39 million SMEs contribute around 30% of the country’s GDP. Many of these companies have previously found it difficult to trade internationally or obtain funding because they could not adequately prove their identity. The LEI enables them to get a globally recognised business identity that facilitates international trade and funding opportunities.

Thanks to the LEI, SMEs can now more easily find international trading partners, gain access to credit and expand their business relationships. This strengthens the individual companies and India’s economy as a whole, as more capital flows into the country and new business opportunities arise.

Conclusion

The introduction of the LEI in India has the potential to significantly empower SMEs and pave their way into the global economy. The regulatory measures promote a trustworthy and verified identity that is recognised internationally. This opens up new opportunities for Indian SMEs and contributes to economic development.

India shows how regulatory measures can support and help SMEs succeed in a global economy. The future looks promising as more and more companies realise the benefits of the LEI and open up new opportunities.