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The Reserve Bank of India (RBI) recently introduced the Unified Lending Interface (ULI), a digital platform aimed at addressing the credit needs of various sectors, with a particular focus on agriculture and Micro, Small, and Medium Enterprises (MSMEs). Historically, these sectors have struggled with obtaining organized credit, which is crucial for their survival and growth. Essential criteria for effective credit utilization include timely access, adequate amounts, and affordable costs—requirements that are often unmet, even for those who secure credit from public sector banks (PSBs) or other government entities. The ULI is expected to revolutionize the credit system in India, potentially transforming how these sectors access funding.

What is the Unified Lending Interface (ULI)?

ULI is a digital platform designed to streamline the lending process and address the significant unmet credit demand across various sectors. While it targets a broad range of borrowers, its primary focus is on agriculture and MSMEs. India’s integration of digital public infrastructure sets a strong foundation for ULI’s implementation, which is anticipated to encourage financial institutions—such as banks, non-banking financial companies (NBFCs), fintech firms, and startups—to develop and offer innovative solutions in payment services, credit offerings, and other financial transactions. ULI aims to reduce the time required for credit appraisals, particularly benefiting small and rural borrowers.

On August 26, RBI Governor Shaktikanta Das remarked at the ULI inauguration, “By digitizing access to customers’ financial and non-financial data, which previously resided in disparate silos, ULI is expected to meet the large unmet demand for credit across various sectors, particularly agriculture and MSMEs.” He highlighted the success of previous digital infrastructure initiatives and stated, “The new trinity of JAM-UPI-ULI will be a revolutionary step forward in India’s digital infrastructure journey.” Das noted that tools like JAM (Jan Dhan, Aadhaar, and Mobile) have already improved direct benefit transfers, reducing fund leakage. He emphasized that ULI’s digitization of customer data is expected to address a significant unmet need for credit in these key sectors.

Challenges Facing ULI

It is too early to fully evaluate the efficacy of ULI, as it has only recently been introduced and is currently limited in scope. A significant challenge is the training and accessibility for small farmers and MSME entrepreneurs. Many lack the necessary skills to effectively use the ULI tool, which could limit their ability to secure timely credit. Additionally, maintaining the necessary documentation for organized credit remains a hurdle for many. Establishing support centers in rural areas to assist farmers and small entrepreneurs with ULI could enhance the program’s success.

Additional Requirements for ULI’s Success

Research indicates that small farmers and entrepreneurs face a range of issues beyond financial access. These include challenges with financial assistance, marketing, technology, skill development, business expertise, procurement of raw materials, hiring competent staff, product innovation, and competition from larger enterprises. Addressing these multifaceted challenges will be critical for ULI’s success.

Hitanshu Guha, President of the Federation of Associations of Cottage and Small Industries (FACSI), noted that while the financial aspects of ULI could help small entrepreneurs, other business challenges remain. Issues such as payment recovery from buyers and delays in payment schedules often exacerbate financial strains. Farmers also grapple with issues like product pricing, lack of irrigation, and natural calamities. While ULI’s introduction is a positive development, its overall impact on the economy will need to be assessed over time.