Source-This post on Unified Lending Interface (ULI) Initiative has been created based on the article “Ease of lending – New platform will improve access to credit” published in “Business Standard” on 28 August 2024.
UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Context– Following a successful pilot, the Reserve Bank of India (RBI) is set to launch the Unified Lending Interface (ULI) nationwide. This platform aims to revolutionize lending for agriculture and MSMEs, like how UPI transformed digital payments.
Credit penetration in India is low: MSME credit is at 14%, retail credit at 11%, and credit cards at 4%. However, demand is growing, with 66 million new credit customers added in 2021 and 2022, 67% of whom are from rural and semi-urban areas.
What are the Constraints in Credit Availability?
A) High Risk: Borrowers often have high-risk profiles.
B) Insufficient Data: There is a lack of traditional data for assessing risk.
C) Lack of Collateral: Many borrowers do not have adequate assets to pledge.
D) High Costs: Service costs are particularly high for rural areas and small-value loans.
What are Key Features of Unified Lending Interface (ULI) Initiative?
1) Digital access to information from diverse sources
2) Accurate creditworthiness assessment of potential borrowers
3) Reduced time for loan approval and disbursement
4) Seamless credit delivery without extensive documentation.
What is the significance of the Unified Lending Interface (ULI) Initiative?
1) Streamlined Digital Data Transfer -This platform will allow for a smooth transfer of digital information from different data sources to lenders, with proper consent.
2) Enhanced Loan Processing -The ULI will give lenders accurate information on creditworthiness by pulling data from various sources. It will speed up loan approvals and disbursements by reducing paperwork, making the process more efficient for both borrowers and lenders.
Read More– Key Challenges MSMEs Face in India
3) Building on India’s Digital Success -India has successfully used its digital tools like JAM (Jan Dhan, Aadhaar, and mobile phones) and UPI. The ULI will build on this progress and further strengthen India’s digital infrastructure.
4) Enhancing Credit Assessment -The ULI will bridge credit gaps by providing lenders with a full view of customers’ financial and non-financial data. This will enhance digital lending by using additional details like asset ownership, land records, geolocation, and digital footprints for risk assessment.
What should be the way forward?
1) Digital Lending and the Need for Deposit Growth -The digital lending sector is expected to grow quickly, with digital channels becoming the main way loans are distributed. To fully utilize the ULI, banks must address the current issue where deposit growth is lagging behind lending growth.
2) Regulatory Considerations– The RBI needs to carefully oversee lending practices by banks and NBFCs. To manage loan growth and mitigate risks, it increased the risk weightings for certain loan categories last year.
Question for practice
What are the main features of the Unified Lending Interface (ULI) initiative? What is its significance? What should be the next steps?
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