UNIFIED LENDING INTERFACE (ULI)
1. Context
The Reserve Bank of India (RBI), as part of its strategy to create digital public infrastructure in the country, has announced that a new technology platform called the Unified Lending Interface (ULI) would be introduced by the Reserve Bank Innovation Hub, Bengaluru which will enable friction-less credit to farmers and MSME borrowers to begin with.
2. What is Unified Lending Interface (ULI)?
- The Unified Lending Interface (ULI) serves as a platform that enables the smooth transfer of both financial and non-financial digital data from various service providers to lenders, streamlining the credit underwriting process and enhancing the customer experience for a wide range of borrowers.
- ULI allows the efficient, consent-based transfer of digital information, including state land records, thereby reducing the time required for credit appraisal, particularly for small and rural borrowers who may lack a credit history.
- The platform’s architecture features standardized Application Programming Interfaces (APIs) designed for easy integration, ensuring digital access to data from multiple sources. This simplifies the technical complexity of integrating various systems and enables borrowers to receive credit faster, with minimal documentation.
- For lenders, ULI provides access to customer data from diverse sources, including government databases and satellite imagery, through standardized APIs. FinTech companies can also leverage this platform to connect with multiple lenders and offer more detailed customer insights
3. Key features of ULI
- Obtaining a bank loan is typically very challenging for first-time borrowers who lack a credit history or the necessary documentation. However, with the introduction of the Unified Lending Interface (ULI), digital credit information can now be accessed via a single platform that connects data providers with lenders, catering to the needs of potential borrowers.
- ULI not only offers access to data about the applicant's economic activities but also enables financial institutions to retrieve this information by connecting to the platform using a 'plug and play' model.
- As a result, loan applicants no longer need to spend weeks gathering and securing documents; instead, banks, NBFCs, or FinTechs can obtain the necessary data directly from the sources available on the ULI platform.
- For example, a dairy farmer seeking a loan can have their cash flow data retrieved from the milk cooperative, land ownership verified through state land records, and financial condition assessed through farming patterns.
- This transforms what was once a blind spot for lenders into a clear picture of the borrower, allowing them to make informed lending decisions. With ULI, lenders can instantly determine the applicant's income and creditworthiness, automating the decision-making process and enabling loans to be sanctioned and disbursed within minutes.
- Tenant farmers, who often struggle to secure agricultural credit due to the lack of land titles, can also benefit from ULI. By programming the funds for specific agricultural inputs, ULI can provide banks with the necessary assurance, establishing the farmer's identity not through land ownership but through the intended use of the funds being disbursed
4. Potential benefits of ULI
- ULI simplifies the process for first-time borrowers, including those without a credit history or extensive documentation, by providing lenders with access to comprehensive digital data. This makes it easier for borrowers, especially in rural areas, to access loans.
- By automating the data retrieval and credit assessment processes, ULI enables lenders to make quick, informed decisions, reducing the time required to approve and disburse loans. This can lead to faster turnaround times, sometimes within minutes
- The platform connects various data providers, such as government databases and financial institutions, ensuring that all relevant information about a borrower is available in one place. This reduces the need for multiple technical integrations and simplifies the lending process.
- ULI allows lenders to access diverse data points, such as economic activities, land records, and financial patterns, which can help them better assess a borrower's creditworthiness, even if they lack traditional credit history
- ULI particularly benefits segments like small farmers, tenant farmers, and rural borrowers who typically struggle to access credit due to a lack of collateral or formal financial records. By providing alternative data sources, ULI helps establish credit eligibility for these groups
- By streamlining the lending process and reducing the need for extensive documentation, ULI can lower operational costs for lenders. This efficiency can potentially be passed on to borrowers in the form of lower interest rates or fees
- By making credit more accessible and reducing barriers to entry for borrowers, ULI promotes financial inclusion, helping more people and businesses participate in the formal financial system
- ULI enables lenders and FinTechs to make more accurate lending decisions based on a comprehensive view of a borrower's financial situation, leading to better risk management and reduced defaults
5. What are the Other Platforms that Facilitate Lending in india?
In India, several platforms facilitate lending by leveraging technology and data to streamline the process. Some of the notable platforms include:
Account Aggregators (AA)
- Description: Account Aggregators are licensed entities by the Reserve Bank of India (RBI) that enable the sharing of financial data across financial institutions with customer consent. They act as intermediaries, allowing users to aggregate their financial information from various banks, insurance companies, and other financial entities into one platform.
- Use in Lending: By providing a consolidated view of a customer’s financial history, these platforms help lenders assess creditworthiness more accurately and efficiently.
Peer-to-Peer (P2P) Lending Platforms
- Examples: Faircent, LenDenClub, i2iFunding
- Description: P2P lending platforms connect individual borrowers with individual lenders directly. These platforms eliminate traditional intermediaries, such as banks, allowing for more competitive interest rates and accessible credit.
- Use in Lending: They facilitate personal loans, business loans, and even educational loans, often catering to those who might not qualify for conventional bank loans.
MUDRA (Micro Units Development and Refinance Agency)
- Description: Launched by the Government of India, MUDRA provides refinancing support to microfinance institutions (MFIs) and other financial intermediaries, which then extend loans to small and micro enterprises.
- Use in Lending: MUDRA loans are categorized under Shishu, Kishor, and Tarun, offering financial support to businesses at various stages of growth, primarily targeting small and micro enterprises.
IndiaStack
- Description: IndiaStack is a set of APIs that enable businesses, startups, and government agencies to utilize the power of digital infrastructure for services like e-KYC, digital signatures, and instant payments.
- Use in Lending: It facilitates seamless digital verification, reducing the paperwork and time involved in loan processing. It is also integral to platforms like UPI (Unified Payments Interface), which indirectly supports lending by enabling quick and secure payments.
Unified Payments Interface (UPI)
- Description: UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI). It allows the immediate transfer of funds between two bank accounts via a mobile platform.
- Use in Lending: UPI’s seamless transaction process aids in micro-lending and repayments, particularly in the fintech space, enabling quick disbursement and collection of small-ticket loans.
Digital Lending Platforms
- Examples: Capital Float, Lendingkart, KreditBee
- Description: These fintech platforms provide digital loans to individuals and businesses by leveraging alternative data, AI, and machine learning to assess credit risk and approve loans rapidly.
- Use in Lending: They offer a range of financial products, including working capital loans, personal loans, and business loans, particularly focusing on the underbanked or underserved segments.
NBFC Platforms
- Examples: Bajaj Finserv, Mahindra Finance, Tata Capital
- Description: Non-Banking Financial Companies (NBFCs) play a crucial role in providing loans to individuals and businesses who may not have access to traditional banking services. Many NBFCs have developed digital platforms to enhance their reach and efficiency.
- Use in Lending: They offer diverse lending products, including personal loans, vehicle loans, SME loans, and more, with a focus on faster approval processes and less stringent documentation requirements.
On-tap TLTRO (Targeted Long Term Repo Operations)
- Description: Initiated by the RBI, TLTRO provides banks with long-term liquidity to invest in corporate bonds, commercial paper, and other investment-grade instruments, thereby enhancing credit flow to the economy.
- Use in Lending: It ensures that the liquidity in the banking system is directed towards specific sectors in need, thereby facilitating lending to those areas.
MSME Credit Health Platform
- Description: This platform, introduced by SIDBI, provides MSMEs with access to their credit health report and also offers an online loan application facility to streamline the borrowing process.
- Use in Lending: It helps MSMEs understand their credit standing and connects them with lenders for potential borrowing, enhancing access to finance for small businesses.
Trade Receivables Discounting System (TReDS)
- Description: TReDS is an online platform that facilitates the financing of trade receivables of MSMEs through multiple financiers.
- Use in Lending: It provides MSMEs with quicker access to working capital by discounting their trade receivables and reducing the payment cycle.
| For Prelims: Unified Payments Interface (UPI), PayNow, Virtual Payment Address (VPA), Person-to-Person (P2P) and Person-to- Merchant (P2M) payments, NonBank Financial Institutions (NFIs), Foreign Identification Number (FIN), G20, Reserve Bank of India (RBI), and RBI Remittance Survey. |
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Previous Year Question
Consider the following statements:(UPSC 2017)
1. National Payments Corporation of India (NPCI) helps in promoting financial inclusion in the country.
2. NPCI has launched RuPay, a card payment scheme.
Which of the statements given above is/are correct?
A.1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2
Answer: C
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Source: The Hindu
