Litigation finance, also known as legal financing or third-party funding, is a growing industry in India that provides financial support to individuals or businesses who are involved in legal disputes or cases. The goal of litigation finance is to provide funding for legal costs, such as attorney fees, expert witness fees, court fees, and other ancillary costs.
Litigation financiers typically offer to fund claimants (individuals or businesses) involved in mediation, arbitration, and civil or commercial disputes. In order to qualify for litigation finance, the claimant must have a strong merit to pursue the case.
Recent reports show that the global litigation funding market is growing rapidly, with annual growth rates of 20-30% in recent years. The demand analysis of the Global Litigation Funding Investment Market is anticipated to reach approximately USD 25.8 billion by 2030, at a CAGR of 9% between 2022 and 2030, according to a report by Custom Market Insights. Recently, there has been a lot of interest in the rapidly increasing alternative asset class of litigation financing. Various investors are diversifying their portfolios as the market is growing as well as it is not market linked and provides high absolute and relative returns.
The Indian litigation funding market has gained momentum over recent years. India has more potential in terms of monetisation of claims than London, Singapore, and Hong Kong. The return on this type of financing is more than 50%-100% as compared to the traditional investment done in any conventional corporate finance deals in the Indian Market. With the rising cost of legal expenditures in India, litigation funding is experiencing a major surge in demand which will continue to grow exponentially in 2023.
Indian litigation funder has backed more than 3000 lawsuits and arbitrations in domestic courts as well as courts of Australia, Singapore, Dubai the United States, and Europe. Litigation funding has made its own mark on the Indian map helping various industries such as logistics, banking, finance, Engineering, Procurement, Construction (EPC) sector, manufacturing, etc. by hedging their financial risk of litigation and providing them with timely relief. Litigation funding has dominated the legal expense sector through its creative use of its own artificial intelligence algorithms and has provided a solution for high legal costs.
Various prominent litigation funders have been eye-ing India as a potential destination. But India is a very difficult market to capture. The traditional way of litigation funding does not fit in here. Therefore, funders need to be very flexible and client-friendly approach while entering the market. India has seen major growth and development in its arbitration and dispute practice across the country. Mediation and conciliation are also structured and voluntary alternative dispute mechanisms which have helped in resolving disputes and reducing the burden of courts. Such developments will attract litigation funding in the country and help in providing access to justice.
Litigation funding functions on a robust underwriting procedure, supported by AI technologies, which provides the claimant with insight into whether or not to pursue the case. The underwriting also considers the creditworthiness of the defendant, allowing funders and claimants to assess the defendant’s ability to pay an award or recovery. Such knowledge validates claims to the claimant regarding the merits of the case, the financial sustainability of the defendant, and other operational issues.
India being a developing nation has a lot of opportunities that will lead to various new commercial disputes. There has been an immense growth in the international dispute market. The country has faced a massive hit by various frauds and scams during the pandemic which has led to potential claims worth billions of dollars to be filed collectively in India. The amendments under the Insolvency Code have opened various opportunities to fund such litigation in India. Litigation finance will ensure that the common man has access to fight for their rights.
(The author is Mr. Kundan Shahi, CEO, Legalpay and the views expressed in this article are his own)
