RBI’s Unified Lending Interface from RBI– Streamlining loans for small businesses

The Reserve Bank of India (RBI) is all set to launch the Unified Lending Interface (ULI), after a successful pilot phase in 2023. This ground-breaking platform is designed to streamline the loan application process, particularly for underserved small businesses and rural borrowers. By providing lenders with seamless access to financial information of borrowers, ULI aims to speed-up loan approvals, reduce paperwork, and increase transparency.

The ULI can modernize & streamline the lending process and make it simpler, much like the way the UPI transformed digital payments without traditional banking processes. When the platform gains traction, it actually would become a standard for lending transactions across India, driving efficiency, greater access to credit for smaller businesses and transparency. 

What is Unified Lending Interface?

ULI is a centralized public tech platform that leverages digitized financial and non-financial data from various sources, streamlines the loan application process, reduces the time taken for loan appraisal and facilitates faster disbursement of loans. It uses standardised APIs and provides lenders a seamless access to borrower’s financial data from sources like government databases, credit bureaus, financial institutions etc. 

What are the key features and therefore benefits of ULI?

Feature 1 : Consent-based access to Data and its seamless flow 

The ULI platform integrates data (both financial and non-financial data) from various sources like Government databases like GSTN, Aadhaar, land records, financial records, PAN information etc, and streamlines its verification. And makes this data accessible through standardized APIs, which facilitate easier data exchange between lenders and borrowers. This consent-based access to data helps maintain trust and keeps sensitive financial data protected from unauthorised access.

Benefits from Consent-based access to Data and its seamless flow 

1. Faster loan approvals and Reduced operational costs : seamless data flow and verification would reduce the administrative expenses related to loan processing, and because of this lenders can explore a broader customer base. This streamlined access also reduces time needed for credit assessment and reduces hassle for borrowers. 
2. Personalization : Borrowers can benefit from personalized financial solutions customized to their specific needs.

Feature 2 : Digital loan disbursement

The entire lending process, from credit assessment to agreement finalization and disbursement happens digitally. ULI supports digital KYC, eSign, and eStamp, ensuring that the process is not only efficient but also secure. 

Benefits from Digital loan disbursement 

1. Stress-free and satisfying customer experience : This faster and simplified loan approval process creates a satisfying experience for borrowers (small businesses and underserved) – reduced waiting time and stress, less cumbersome application procedures. This reduction in paperwork not only saves time but also reduces the possibility of errors & delays in loan processing.
2. Access to a wider lender network on ULI : FinTechs and other financial service providers can connect with multiple lenders through ULI, and unlock new business opportunities. 
3. Lower interest rates : ULI can potentially lead to lower interest rates for MSMEs/Small businesses because of increased competition amongst lenders.   

Feature 3 : Enhanced Credit underwriting 

The platform equips lenders with granular customer data who then could do more accurate credit assessments. It provides tools for validation and verification, like PAN verification, DigiLocker document verification, and eKYC to ensure the accuracy and authenticity of borrower information. Traditional credit scoring systems often rely heavily on past financial behaviour. But, ULI leverages alternative data sources such as digital payment histories, utility bills, and transaction data, to build a more comprehensive and nuanced credit profile.

Benefits from Enhanced Credit underwriting  

Faster access to loans and expanded financial inclusion : Due to unified data system and therefore accurate credit assessment, lending institutions like Banks/NBFCs and FinTechs can tap into underserved markets, diversify their credit solutions and reach a wider base of B2B borrowers. 

Feature 4 : Ready-to-use infrastructure  

ULI’s plug-and-play approach allows financial institutions to quickly start using the platform without extensive technical modifications and setup. 

Benefit from Ready-to-use infrastructure 

ULI is designed to enable all financial sector entities connect seamlessly in a ‘plug and play’ model in order to create a frictionless loan journey. And it reduces the complexity of multiple technical integrations.   

How does ULI benefit different stakeholders? 

As one can see in the image (given below), ULI plays a crucial role in fostering a more inclusive financial ecosystem, benefiting both underserved businesses and financial institutions. It creates a win-win scenario, enabling underserved businesses to thrive with faster loans/credit and empowering financial institutions (including FinTechs like ProFinTech) to develop innovative credit products or solutions, at a faster pace.

Unified Lending Interface (Vs) Open Credit Enablement Network

While both ULI and OCEN improve access to credit, ULI is designed for broader applicability and deeper penetration covering small businesses, rural borrowers and agriculture sector. ULI also has the capability to incorporating diverse data sources like land records to enable credit underwriting more seamless.

OCEN primarily focusses on enabling cash-flow based lending to MSMEs. Do read our comprehensive view on OCEN.

In conclusion, the ULI is a huge leap forward in Digital lending in India-

Through leveraging technology to simplify and speed up the loan process, ULI is bound to be beneficial to both underserved borrowers and lenders, especially within the MSME sector. The full-fledged launch of ULI aligns with ProFinTech’s vision of empowering MSMEs with fast and affordable trade financing by leveraging AI/ML models, real-time trade data, alternative data including compliance behavioral data, advanced analytics. With ULI’s full-scale launch, we at ProFinTech are more committed than ever to empowering MSMEs and minimizing the credit gap in the MSME sector.

As a reinforcer, we are sharing the view from  Dr. Srinath Sridharan, a Policy Researcher & Corporate Advisor, and Ram Rastogi, a Digital Evangelist, below : 

“…the promise of ULI in transforming credit access for no-file and thin-file clients is undeniable, but its true impact depends on tackling critical issues like data privacy, financial literacy, and ecosystem-wide collaboration. Without safeguarding personal data and fostering trust, its foundation will remain fragile. For ULI to genuinely thrive, it must be paired with robust financial literacy efforts that empower the underserved, enabling them to navigate the formal credit landscape with confidence.

Only through the united efforts of FinTechs, Banks, and regulators can ULI fulfil its potential, not just as a tool of innovation, but as a driver of equitable, sustainable financial growth. The ULI lays the structural groundwork for a more inclusive financial future, but its true success hinges on the financial sector’s ability to innovate responsibly, ensuring that access to credit is not just expanded but delivered with fairness, dignity, and a long-term vision for socio-economic growth…”

Read on.

Credits : Media updates on ULI, Jyothsna