With the rise of digital inclusion in the financial sector, there has been a major shift in the market. People in the Tier-2 and Tier-3 parts of the country have started using digital banking methods to conduct various operational activities.
One of the Reserve Bank of India’s most successful launches is the UPI (Unified Payment Interface), which enabled buyers and sellers to transact easily through their phones by directly accessing their bank accounts.
UPI has transformed the payment ecosystem, and the aggregators are the ones who have facilitated this technology by putting their API on top of that. Therefore, simply through an app, people can easily transact and send money to people in real-time.
The same is going to happen again with the recent launch of the ULI (Unified Lending Interface) API, which NBFCs and banks can use to provide retail and microloans to customers faster and hassle-free.
In this blog, we will learn in detail about the ULI, how it will work, who it will benefit the most, and how banks and NBFCs can integrate it into their lending services.
The Real Purpose of Unified Lending Interface
Previously, while providing a loan, a bank or lending institution used to do due diligence. After checking the entire process and files, one could finally get the approval for a loan. Even after that, a borrower needed to wait two to three days for the disbursement of the loan.
To avoid that, one can use the DSA partner app, where a person can find an agent who can guide them through the best interest offered by various banks and NBFCs. However, the disbursement process is not in the hands of the agents, and customers also need to go through the tedious process of due diligence.
Without any integrated app or system, the lending market remained fragmented, and a large portion of the population who needed credit was underserved.
How the Interface Will Work
As per the RBI guidelines, the ULI scheme will work on top of the “Jan Dhan, Aadhar, Mobile” or JAM Trinity setup, which completes the country’s Digital Public Infrastructure (DPI). Here, the UPI and ULI will both be together, therefore reducing the need for documentation for banks and NBFCs.
In the ULI, banks don’t need to collect the details of every borrower and rather can check all their documents using ULI which will keep a record of all the items which are present in the system or attached to that person.
The central bank has mentioned that the API design of the ULI will be a plug and play model where the lenders can use the infrastructure in their system and can access information from the same pool. The system will ask for consent from the borrowers, which will then become visible to the banks or the lenders.
The Target Group Which Can Benefit from ULI
The target group for ULI is the rural population where credit facilities are still not available; through ULI, it can cater to the large population in those regions. It can also be used for micro-loans, where farmers, students, and small businesses can take loans of a low ticket amount, and that can be passed through ULI.
Previously, a DSA needed to visit such areas and find who are the potential borrowers, and needs to link them with the banks and NBFCs. A DSA’s full form is a Direct Selling Agent, and they are the ones who work as a connector between the lender and the borrower.
Now, the DSAs can also take advantage of the ULI and introduce that to the borrowers, which will help them to get the amount transferred in a short period, reducing the long wait time.
Prospects of Banks After Integrating ULI Service
The banks can integrate this service through the APIs that will be provided to such institutions. Banks that are in the microlending space and retail space can get an unparalleled advantage as they can fulfill the untapped demands of credit in the Tier-2 and Tier-3 parts of the country.
Finally, it will fulfill the objective of digital inclusion, and that will lead to consumption and the start of new ventures which will directly contribute to the expansion of the economy.
