ULI, a game-changer

India’s public digital finance infrastructure is rapidly transforming, thanks first to the success of the Unified Payments Interface (UPI) and now the proposed introduction of the Unified Lending Interface (ULI).

While UPI redefined payments, offering unprecedented convenience and accessibility, ULI aims to revolutionise lending.

ULI is poised to target sectors like agriculture and MSMEs, where access to credit has historically been a challenge.

Small farmers often lack the credit histories and collateral required to secure loans.

Similarly, MSMEs face an estimated credit gap of over $500 billion.

ULI is expected to bridge this gap with an inclusive solution, leveraging digital technology to streamline and democratise access to credit.

How ULI works ULI simplifies the loan process by automating much of the data gathering and credit evaluation.

It integrates data from financial institutions, government databases, and alternative sources such as land records and satellite imagery.

This comprehensive view allows lenders to evaluate borrowers’ financial and non-financial standing more efficiently.

Borrowers can digitally authorise ULI to access their data, eliminating the need for physical documents.

This real-time data access significantly shortens the loan approval process, allowing lenders to make faster, informed decisions.

By automating data collection and utilising digital records, ULI enables lenders to make quicker and more pragmatic lending decisions.

This is crucial for sectors like agriculture, where time-sensitive loans can determine the success of a crop cycle.

Traditional lenders often require formal documentation, such as tax returns or detailed business records, which many small borrowers cannot provide.

ULI incorporates alternative data sources, offering a holistic view of a borrower’s financial behaviour.

Traditional lending often involves third-party data providers, which increase costs.

By consolidating multiple data sources into one platform, ULI eliminates intermediaries, reducing costs for lenders and potentially lowering interest rates for borrowers.

Automating data collection and analysis allow lenders to process more loan applications efficiently.

Additionally, the use of alternative data enables lenders to tap into underserved markets, such as rural customers or those new to credit.

ULI also gives lenders tools to create more tailored financial products.

The challenges Despite its many benefits, ULI faces several challenges.

Data privacy and security are major concerns.

ULI relies heavily on sharing sensitive financial and personal information, making robust data protection measures crucial.

Ensuring that borrower consent mechanisms are secure and transparent will be vital in building trust in the system.

Another challenge is India’s digital infrastructure, especially in rural areas.

While ULI has the potential to reach millions of underserved borrowers, its success depends on adequate internet connectivity and the digital literacy of users.

Though ULI primarily focuses on lending, its integration into the broader digital financial ecosystem could significantly impact payment processing.

By integrating credit with digital payments, ULI may further reduce friction in financial transactions, making it easier for borrowers to manage their loans and for lenders to collect payments.

For example, a borrower receiving a loan through ULI could have the funds disbursed instantly into a UPI-linked account, enabling immediate access.

Similarly, MSMEs could use UPI to make loan repayments, linking credit and payment systems seamlessly.

This interaction between lending and payments could drive further innovation and create a more comprehensive financial ecosystem.

The writers are with RVKS and Associates.