TAG: GS 3: ECONOMY
THE CONTEXT: Following the revolutionary success of the Unified Payments Interface (UPI) in the retail payments space, Reserve Bank of India (RBI) Governor Shaktikanta Das recently announced the upcoming launch of the Unified Lending Interface (ULI) in ‘due course’ to transform the lending ecosystem of the country.
EXPLANATION:
What is ULI?
- ULI is the credit digital public infrastructure (DPI) platform designed and developed by the Reserve Bank Innovation Hub (RBIH).
- It aims to enable a seamless and consent-based flow of digital information, including land records from various states, from multiple data service providers to lenders.
- Last year, the central bank launched the pilot of a technology platform which enables frictionless credit.
- This will now be called ULI.
How does ULI help?
- ULI aims to address the significant unmet demand for credit across various sectors, especially for agricultural and micro, small, and medium enterprises (MSME) borrowers.
- By digitising access to customers’ financial and non-financial data, which currently reside in disparate silos, ULI will reduce the time required for credit appraisal, particularly for small and rural borrowers.
- This will enable seamless credit delivery and quicker turnaround time without requiring extensive documentation.
What are the current challenges with digital lending?
- Currently, the data needed for credit appraisal is scattered across multiple entities such as governments, banks, account aggregators, and credit information companies.
- These data silos hinder the frictionless and timely delivery of digital credit.
- ULI’s architecture addresses this challenge with standardised application programming interfaces (APIs) designed for a ‘plug and play’ approach, simplifying digital access to information from diverse sources and reducing the complexity of multiple technical integrations.
Is ULI the next big thing after UPI?
- RBI Governor believes ULI will have a transformative impact on India’s lending landscape, much like UPI did for payments.
- He referred to the combination of JAM (Jan Dhan-Aadhaar-Mobile), UPI, and ULI as the “new trinity” that will propel India’s digital infrastructure journey forward.
- The JAM (Jan Dhan-Aadhar-Mobile) refers to the government’s initiative to link Jan Dhan accounts, mobile numbers and Aadhaar cards of Indians to plug the leakages of government subsidies.
What is Unified Payment Interface?
- Unified Payments Interface or UPI is a real-time payment system launched in India in April 2016 by the National Payments Corporation of India (NPCI).
- It is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
- UPI also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
- It helps in immediate money transfer through mobile device round the clock.
- It allows a single mobile application for accessing different bank accounts.
- UPI has played a significant role in the growth of retail digital payments in the country.
- While initial participants on the UPI platform were banks, non-bank third-party app providers and use of QR (quick-response) codes have all combined in popularising UPI.
- It has emerged as a robust, cost effective and portable retail payment system and is attracting active interest across the globe.