Speed up digital lending for SMEs with account aggregator system, says Nandan Nilekani

India with its home-grown digital payment system called the Unified Payment Interface (UPI), which does 1.3 billion transactions a month can change the way small businesses get credit. When combined with digital invoice data and GST data of SMEs gathered from account aggregators (entities authorised to use data from consumers or companies), it would become an efficient method to underwrite and disburse loans for SMEs, which would then democratise credit in India, said Nandan Nilekani, Infosys chairman and former UIDAI chief, who was speaking via video conference at the Global Fintech Summit organised by the IAMAI.

India has 50 million SMEs and for them to access credit from organised institutions has always been a challenge.

“With Aadhaar as the backbone for identification, the UPI as a payments system, and the data gathered by account aggregators, lending to small businesses will increase. In India, loans have always been accessed by small companies because small value shorter duration loans were not easy to underwrite due to the costs involved," he said.

He added, "However, with digital infrastructure bringing the cost of finding a small business to almost nothing allows banks to provide smaller value loans with high frequency. This can democratise digital goods in India and these loans provided will kickstart the economy which was affected by the COVID-19 crisis.” 

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At the event, the NPCI (the quasi govt body that handles the infrastructure behind India's digital payments) also unveiled UPI Auto Pay where business or consumers can set a rule for auto payments of their EMIs, loans and other recurring payments to vendors. 

“While the digital infrastructure is created by the government, we need private companies to innovate on the same. UPI is already available on feature phones, but it is being used by a hundred million smartphone users. However, any digital good must be made available to every Indian," said Nandan.

He added, "Today many things are falling in place because of the crisis. The digital journey which would take years is shortened to a few months and weeks. The government is already working on health stack and thanks to Aadhaar, financial disbursements have become easy. Over the last two months there were 400 million transactions on the Aadhar payment system where migrant workers could withdraw money from banking correspondents using the Aadhaar number”. 

He also added that UPI was now preparing its infrastructure to do one billion transactions a day as against one billion a month today.