The Reserve Bank of India has been at the forefront of transforming India’s financial ecosystem through digital innovation. The recent announcement of the launch of Unified Lending Interface (ULI) marks another significant stride in this journey. Initially launched as a pilot project in 2023, ULI is poised to revolutionise the lending landscape by making credit access more efficient, transparent, and inclusive.

The platform, which provides consent-based digital access and standardised Application Programming Interfaces (APIs), promises to deliver frictionless credit, especially to sectors that have traditionally been underserved. Among the beneficiaries, farmers and micro, small and medium enterprises (MSMEs) stand to gain the most from this digital revolution.

Credit gap

Agriculture faces a critical challenge in accessing formal credit, with small and marginal farmers being particularly underserved. According to NABARD, the credit gap in the agriculture sector was estimated at a staggering ₹15 lakh crore in 2021-22. Studies assessing the disparity in agricultural credit across different social groups, using measures such as credit access, credit adequacy ratio, and the newly constructed Agriculture Credit Disparity Index (ACDI), reveal that about 77 per cent of farmers have not obtained agricultural credit from banks. The credit access ratio and ACDI suggest that socially advantaged groups have better access to institutional agricultural assistance compared to socially disadvantaged groups. This shortfall forces many farmers to rely on informal lenders, often at exorbitant interest rates and unfavourable terms.

The ULI simplifies credit appraisal by providing consent-based digital access to financial and non-financial data, including land records. By reducing the need for physical documentation, ULI speeds up loan approvals and minimises the risk of errors or fraud. Its integration with digital initiatives like Jan Dhan, Aadhaar and UPI is set to expand formal banking access for farmers, offering loans at competitive rates. This digital shift is expected to boost agricultural productivity, enabling better investments and improving livelihoods.

The MSME sector, often hailed as the engine of India’s economic growth, contributes around 30 per cent to India’s GDP, 45 per cent to its manufacturing output, and 48 per cent to exports. Despite its critical role, the sector faces a significant credit gap, estimated at $530 billion. According to a report by an investment bank, only 14 per cent of the 63 million small businesses in India have access to formal credit. Additionally, an ADB survey found that 87 per cent of MSMEs cite funding shortages as a key barrier to upgrading their technology. Moreover, formal credit penetration in the sector is a mere 20 per cent, and MSMEs often pay informal lenders exorbitant interest rates of 17-26 per cent compared to 7-12 per cent through formal channels such as banks and non-banking financial companies.

ULI addresses the credit gap by offering frictionless credit through a comprehensive appraisal process that consolidates data from financial statements, GST returns, and trade receivables. Its standardised APIs streamline technical integration for banks, boosting lender participation and expanding the credit pool for MSMEs. ULI accelerates loan processing, enabling MSMEs to quickly access funds, seize opportunities, and invest in technology. The integration with platforms like the Public Credit Registry and the Trade Receivables Discounting System is expected to spur innovative financial products for MSMEs, enhancing growth potential and improving access to formal credit.

As ULI expands across India, it is poised to drive inclusive growth, boost job creation, and contribute to a more equitable and prosperous financial system.

The writers are Assistant Professors at the School of Management Studies at Sathyabama Institute of Science and Technology, Chennai. Views are personal

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