Video-KYC needed for foolproof verification, suggests MSME report

The report of the expert committee on micro, small and medium enterprises (MSMEs) has suggested a “video KYC (know-your-customer)” process as an alternative to the existing electronic methods of verifying the identity of a person. It has also  recommended several points for developing a robust start-up environment in India

Electronic KYC (e-KYC) and Aadhaar-based KYC has been a subject of much debate and opposition because of the high potential of misuse of biometric data, and the limitations of low-cost KYC equipment that often does not solve the purpose of performing identity verification. 

The report has elaborated a nine-step process for performing video KYC, as part of performing a digital KYC wherever possible. 

The proposed process would require a customer of an MSME to sign up on the entity’s mobile app or website. The customer would then schedule an appointment on a preferred date and time on the application as a part of the sign up process. The customer would then share images of his/her original proof of identity or proof of address, such as passport and driving license. Based on the internal logic of the app/website, the MSME would offer an available date and time closest to the customer’s preference. Should the customer accepts the offer, an OTP (one-time password) will be generated. The small enterprise can reach out to the customer as per the date and time agreed upon for initiating the digital verification process. The customer will also be provided with the option of a physical visit in case he/she is not comfortable with the digital process.

After this stage, a video call will be initiated using Google Duo for Android users and Facetime for iOS users. The customer will be requested to display his/her original identity document, and read out his/her name as it appears on the document. The MSME representative at the other end will then verify the details with that in the earlier shared image. On successful verification of documents, the MSME representative can then confirm the completion of the video KYC process.

An image of the proof of identity and address, along with the KYC video, will then be uploaded to a proposed platform for digital identification. 

On successful verification, the customer will be informed of the verification.  The expert committee has also recommended that the Reserve Bank of India enable MSMEs to check the credit rating or Credit Monitoring Report (CMR) for their customers, based on consent, through their primary banker.

Enabling environment for start-ups

The Committee has further analysed and made suggestions on how start-ups and small businesses can have a better chance of survival in India.  It has suggested that the Small Industries Development Bank of India (SIDBI) work as a facilitator to create a platform where various venture capital funds can participate in providing equity support to MSMEs. 

“For this, it has to help popularise/ spread awareness of new ways of investing (modified term sheets for instance),” the report notes.  

It has proposed a government-sponsored fund of funds of Rs 10,000 crore to support VC/PE firms investing in the MSME sector that will support crowdfunding from venture capital and private equity firms, which focus on investing in the MSME segment on modified term sheets developed by SIDBI.

It has further proposed a distressed asset fund of Rs 5,000 crore to assist units in clusters where a change in the external environment. Such a fund could work in tandem with the RBI-mandated restructuring schemes or bank-led non-performing assets revival solutions for MSMEs.

“The major reason for the migration of start-ups to other countries is because of the better enabling environment such as tax concessions, well-developed infrastructure, ease of doing business, exit policy, etc. Hence, the Committee is of the view that financial incentives and excellent infrastructure facilities must be deployed to retain successful Indian start-ups and to lure the best talent from across the world to start businesses in India,” the committee has recommended in the report.