Dharmender Jhamb
India’s small businesses and women entrepreneurs have long been the backbone of the economy, contributing not only to GDP but also to the social fabric of the nation. Yet, they have historically struggled with a major obstacle: access to credit. According to a recent report by the International Finance Corporation (IFC), only 5.2% of total loans issued by public sector banks in 2023 went to women-led businesses. This massive disparity reveals an estimated funding gap of $11.4 billion, and without adequate access to credit, countless women entrepreneurs and small businesses are left unable to grow, innovate, or even survive in a competitive market.
Recognising this challenge, the Reserve Bank Innovation Hub (RBIH) launched the Unified Lending Interface (ULI) in August 2023 as a pilot initiative. This groundbreaking digital platform aims to simplify and speed up the lending process, specifically targeting those often excluded from traditional credit systems, including rural borrowers, MSMEs, and women entrepreneurs. ULI is poised to address these long-standing barriers, transforming India’s financial landscape into a more inclusive and equitable ecosystem.
Understanding ULI and its role in India’s financial sector
ULI operates as an open, API-based framework that allows financial institutions to connect seamlessly in a “plug and play” model, enabling smoother interaction between lenders and borrowers. By consolidating various sources of data, such as GST, Aadhaar e-KYC, PAN authentication, and land records, ULI provides lenders with real-time access to essential borrower information. This data-driven approach empowers lenders to make faster, more accurate credit decisions and reduces reliance on traditional paperwork-heavy procedures, which have historically limited the speed and accessibility of loans.
In the broader context of India’s financial sector, ULI arrives at a time when digital lending is experiencing rapid growth. According to the Fintech Association for Consumer Empowerment (FACE), in FY23-24 alone, fintech companies processed loans totaling ₹1.46 trillion, marking a significant 49% increase from the previous year. Despite this growth, millions of potential borrowers remain underserved. By making credit more accessible, ULI aims to bridge this gap and extend financial services to individuals and businesses traditionally excluded from the system.
Tackling systemic barriers to credit for women and MSMEs
The launch of ULI holds particular promise for women-led businesses and MSMEs, which are often constrained by limited or unverified financial histories. These businesses are typically assessed by traditional credit models that rely heavily on previous credit scores, collaterals, and a formal history of financial transactions—factors that work against new or informal enterprises. Many women entrepreneurs, especially those in rural areas, face barriers such as a lack of property ownership or formal financial records, which can prevent them from securing necessary capital.
ULI’s innovation lies in its integration of alternative data points, which broaden the assessment criteria beyond the conventional methods. By incorporating non-financial data—such as land ownership, GST registration, and other relevant identifiers—ULI allows lenders to assess a borrower’s creditworthiness in a more holistic manner. This shift could be transformative for rural borrowers and small businesses, offering them a gateway to formal credit channels that were previously inaccessible.
Leveraging the JAM trinity for financial inclusion
ULI’s approach to digital lending builds on the success of India’s JAM Trinity—Jan Dhan, Aadhaar, and Mobile—which has already played a pivotal role in promoting financial inclusion. Since its inception, JAM has enabled millions of Indians to open bank accounts and access digital financial services, laying the groundwork for a more inclusive economy. ULI extends this success by providing a seamless connection to credit options, leveraging JAM’s broad reach and digital foundation.
In practice, ULI can support a wide array of credit products, including home loans, MSME loans, and personal loans, by integrating financial records with a borrower’s consent. For instance, small business owners seeking MSME loans or farmers applying for Kisan Credit Cards can expect a more streamlined lending process. By consolidating various records and financial histories in a consent-based model, ULI minimises administrative friction for lenders while also empowering borrowers to maintain control over their data. This setup creates a win-win situation, facilitating a smoother and faster credit process.
Streamlining the lending process: Efficiency meets accessibility
One of ULI’s most significant contributions to the Indian lending landscape is its efficiency. Its API-based architecture allows for the automation of numerous aspects of loan processing, minimising the need for human intervention. This streamlined process benefits both lenders and borrowers, particularly for smaller loans, which often suffer from lengthy approval times and burdensome paperwork. With ULI, real-time access to financial and non-financial data significantly reduces the turnaround time, allowing quicker loan disbursements.
For example, a farmer applying for a Kisan Credit Card loan can now expect faster approvals, as ULI enables instant verification of land records, income, and other essential data points. Similarly, small business owners looking for working capital will find it easier to access funds, as ULI’s consolidated data points make credit assessments more accurate and less time-consuming. This increased efficiency not only enhances the borrower experience but also reduces the overall cost of lending, making smaller loans more attractive for financial institutions.
Addressing data privacy and security concerns
As with any digital platform that leverages extensive data, ULI faces significant challenges related to data privacy and security. The system handles sensitive information that, if mishandled, could lead to unauthorised data sharing, identity theft, or financial fraud. To mitigate these risks, ULI must implement stringent security protocols, such as data encryption, access controls, and regular security audits. Ensuring compliance with the Data Protection and Privacy Act (DPDP) of 2023 is crucial to maintaining the integrity of the system.
ULI’s reliance on consent-based data sharing also raises concerns around transparency. To address this, ULI should adopt a graded consent framework, similar to the one used in Digilocker. This approach allows borrowers to control the level of information they share at different stages of the loan application process, giving them greater agency over their personal data. Implementing clear policies around data retention, deletion, and incident response is equally important, as these measures reassure borrowers that their information is handled responsibly.
Building an inclusive financial ecosystem
The potential of ULI to revolutionise India’s lending landscape is vast. By addressing the digital financial inclusion gap, ULI stands to unlock credit for millions of underserved borrowers, empowering women entrepreneurs, MSMEs, and rural communities. With real-time access to a wealth of borrower data, ULI brings India closer to a financial ecosystem that prioritises accessibility, equity, and efficiency.
Yet, ULI’s journey is not without challenges. Issues such as data integration, maintaining regulatory compliance, and safeguarding user privacy are critical for its long-term success. Nonetheless, ULI represents a bold step toward building a more inclusive financial system in India. Its innovative approach aligns well with India’s broader vision of “Vikas bhi, Virasat bhi” (development along with heritage), fostering economic growth while respecting the cultural and social fabric of communities.
As ULI continues to evolve, its impact could catalyse the next wave of economic growth, transforming India’s lending landscape into a more equitable space. With ULI, India is poised to redefine financial inclusion, making credit accessible, secure, and efficient for all. This development not only marks a milestone in digital lending but also lays the groundwork for an empowered, self-reliant India where access to credit becomes a right, not a privilege.
