Why in News?

Unified Lending Interface (ULI), the Reserve Bank of India’s (RBI) technology platform to enable frictionless credit, will be launched nationwide soon.

Similar to Unified Payment Interface (UPI), which has revolutionised the retail payment system in the country, ULI will transform the lending landscape.

What’s in Today’s Article?

• Background in which the Idea of Unified Lending Interface (ULI) Developed
• What is Unified Lending Interface (ULI)?

Background in which the Idea of Unified Lending Interface (ULI) Developed:

• With rapid progress in digitalisation, India has embraced the concept of digital public infrastructure (DPI) which encourages banks, NBFCs, fintech companies and start-ups to create and provide innovative solutions in
  • Payments,
  • Credit, and
  • Other financial activities.
• For digital credit delivery, the data required for credit appraisal are available with different entities like Central and State governments, account aggregators, banks, credit information companies and digital identity authorities.
  • As these data sets are in separate systems, it creates hindrance in frictionless and timely delivery of rule-based lending.
• A pilot project for the digitalisation of Kisan Credit Card (KCC) loans of less than ₹1.6 lakh began in 2022.
  • The initial results of the KCC pilot were encouraging as it enabled doorstep disbursement of loans without any paperwork.
• In 2023, the RBI had announced the setting up of a Public Tech Platform for Frictionless Credit which is now branded as the ULI.

What is Unified Lending Interface (ULI)?

• About: The ULI platform will facilitate a seamless and consent-based flow of digital information, including land records of various states, from multiple data service providers to lenders.
• Objectives:
  • It will cut down the time taken for credit appraisal, especially for smaller and rural borrowers.
  • It is aimed to bring about efficiency in the lending process in terms of reduction of costs, quicker disbursement, and scalability.
• Working:
  • The ULI architecture has common and standardised APIs (Application Programming Interface), designed for a ‘plug and play’ approach to ensure digital access to information from diverse sources.
  • For instance, taking the example of a dairy farmer seeking a loan. The lender can find data from the milk cooperative to know about -
    • Cash flows;
    • Land ownership status from land records of States; and
    • Insights into his financial condition through farming patterns.
  • Thus, with the help of ULI the lenders can immediately know the income of the loan applicant and credit eligibility.
  • Thus, decision making would be automated and loans could be sanctioned and disbursed within minutes.
• Significance:
  • The platform will reduce the complexity of multiple technical integrations by digitising access to customer’s financial and non-financial data that otherwise resided in disparate silos.
  • It is expected to cater to large unmet demand for credit across various sectors, particularly for agricultural and MSME borrowers.
  • Tenant farmers who often find it difficult to access agricultural credit can also avail loans by establishing their identity not through his land holding but through the end use of funds being disbursed.
  • The ‘new trinity’ of JAM-UPI-ULI will be a revolutionary step forward in India’s digital infrastructure journey.
    • JAM (Jan Dhan, Aadhar and Mobile) trinity is a tool used by the government to transfer cash benefits directly to the bank account of the beneficiary.