Tougher scrutiny of foreign investment in India has soured the plans of China's smartphone manufacturers seeking to expand beyond selling hardware for a bigger share of the South Asian country's competitive financial services market.
Xiaomi and Oppo, with more than 100 million in combined smartphone users in India, cannot directly lend to consumers without a shadow banking licence and have partnered with Indian financial companies to provide the funds for services offered on their platforms.
Xiaomi in December launched its online lending service MiCredit in India, connecting users with Indian lending firms to access small loans. By the end of 2019, its platform had disbursed loans worth $16.5 million.
Oppo introdued a similar financial services model Oppo Kash in March.
The Chinese phone brands, however, are keen to establish their own non-banking financial company (NBFC) which will help improve margins by allowing them to directly sell financial products to their pool of smartphone users, people familiar with their plans said.
"India is a very important market...This (rule change) will have a dampening effect," said an industry executive familiar with Xiaomi's consumer finance plans.
That is because India's new foreign direct investment (FDI)rules add another layer in an approval process already incumbered by red tape, a lack of transparency and worries that Chinese investors are encroaching into Indian businesses.
The Reserve Bank of India (RBI) has been cautious about issuing such approvals after the near collapse of one major lender in 2018, and it may now go even slower.
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