Litigation Finance: India's next LegalTech goldmine
When litigation becomes an investment
What is Litigation Finance?
Litigation Finance is one of the emerging market opportunities in the LegalTech sector. Litigation finance involves a party unrelated to the suit providing funding for a case in exchange for a share in the settlement/award. For plaintiffs, they receive funding for their cases while the funders have exposure to high-risk, high-return legal assets.
The Indian Opportunity
India has a backlog of 4.5 million cases, with thousands of cases being filed every day across the nation. In India, litigation expenses annually range anywhere from $15-$20 billion constituting 0.5%-0.7% of GDP.
This cost-heavy legal environment creates a fertile breeding ground for Litigation finance startups because of two reasons:
a) A massive volume of cases, enabling portfolio diversification
b) High legal costs, driving demand for litigation funding
Litigation finance startups such as LegalPay and Liticap are mainly focused on Arbitration and Insolvency proceedings. These startups have a sector of focus. Usually the sectors are land, property, infrastructure, arbitration and class actions.
The market map above highlights some of the interesting startups in the litigation finance space. In the future, we are likely to see most of the investment process automated by AI and Data Analytics. AI can be used to evaluate witnesses, court documents, and records to test the strength of the claim. This can provide better returns for the investors.
Globally, the model for litigation finance has been proved by companies such as Bentham Capital, Parabellum Capital and Apex Litigation Finance. The market size for Litigation finance is expected to reach $25.8 billion by 2030.
Regulation of Litigation Financing
In Bar Council of India vs AK Balaji (2018) the Supreme Court held that litigation financing is per se not illegal, as long as it doesn’t violate other applicable laws. In mature markets like US and UK there are no formal regulations with the industry mostly being self-regulated. As the market matures in India we will see the rise of regulations. Litigation financing has already attracted the attention of RBI, IRDAI, PFRDA and BCI.
Litigation finance will continue to grow in size and empower the average individual or small company to fight against large corporations by funding their cases. It’s not just an investment but a tool for levelling the playing field in India’s legal system.
Source for cover image: https://lewisbrisbois.com/newsroom/legal-alerts/litigation-funding-in-new-york-critical-resource-for-defendants-unveiled