RBI’s Public Tech Platform for Frictionless Credit : A revolutionary step for Financial Inclusion

RBI’s Public Tech Platform for Frictionless Credit

The Reserve Bank of India (RBI) will soon launch a public tech platform aimed at facilitating frictionless credit. This development holds significant implications for the Indian context, as it seeks to address challenges in accessing credit and promote financial inclusion.

This initiative has the potential to greatly impact credit availability in India. By making credit processes more efficient and transparent, it can help individuals and businesses access the credit they need to grow and thrive. This is particularly important in a country where traditional lending practices have often excluded certain segments of the population.

Moreover, this initiative aligns with broader efforts to promote financial inclusion. By using technology to overcome barriers to credit, the RBI is helping to bring more people into the formal financial system. This can have far-reaching benefits, including increased economic opportunities and improved living standards.

Introduction

The development of the Public Tech Platform for Frictionless Credit by the Reserve Bank Innovation Hub (RBIH) aims to address the issue of a fragmented data landscape in credit appraisal. Currently, required digital information is scattered across different entities, hindering timely credit delivery.

To facilitate the seamless flow of digital information, the platform will have an open architecture with accessible APIs, allowing easy integration of data sources and financial sector players. Pilot projects have already been undertaken to test the feasibility and effectiveness of this approach.

This development is part of a phased rollout strategy towards efficient and inclusive credit delivery in India.

Need for the Platform

Fragmented Data Landscape

• Data needed for credit appraisal scattered across entities
• Hindrance in timely and frictionless credit delivery

Fragmentation of data across various entities in the credit ecosystem hinders seamless credit delivery in India.

The data required for credit risk assessment is currently spread across different entities, such as the government, banks, credit information companies, and account aggregators. Each operates independently, resulting in breaks in the flow of information.

For example, land records are with state governments, KYC data is with UIDAI, credit history is with CICs, and income details are with tax authorities. This lack of interlinkages creates gaps and friction in the credit appraisal process.

As a result, timely and efficient credit decisions for retail borrowers and MSMEs become challenging. Moreover, this fragmentation leads to higher operational costs for lenders.

To address this challenge, the Public Tech Platform aims to bring various data sources onto a common architecture using standard APIs. This will facilitate the seamless flow of authenticated digital information necessary for credit underwriting and monitoring purposes.

Ultimately, this initiative is expected to make lending faster, cheaper, and more inclusive.

Pilot Projects Undertaken

• KCC digital loans pilot project (Sep 2022)
• Dairy loans pilot based on milk pouring data
• Learnings and need for expanded scope

To explore the potential of digital lending processes, two pilot projects were undertaken by RBI with the involvement of RBIH.

The first pilot project focused on Kisan Credit Card (KCC) loans and aimed to digitize the credit flow. It allowed for paperless application and streamlined loan approval for amounts up to Rs 1.6 lakhs per borrower in selected districts of five states. Aadhaar e-KYC was utilized for simplified customer onboarding, while doorstep loan disbursement was made possible.

The second pilot project involved a partnership with Amul in Gujarat for dairy loans, which employed milk pouring data as a basis for credit assessment.

These pilots demonstrated the advantages of straight-through digital lending, including reduced costs, faster disbursal, and enhanced customer experience. However, their scope was limited, prompting the need to develop an integrated ‘Public Tech Platform’ that could unify data from various sources and cater to diverse credit products.

This initiative reflects RBI’s commitment to advancing India’s digital credit infrastructure.

Public Tech Platform: Objective and Features

Facilitating Seamless Flow of Digital Information

• To lenders for frictionless credit delivery

Enabling a smooth and continuous flow of authenticated digital information for frictionless credit delivery is the fundamental objective of the Public Tech Platform.

The platform aims to overcome existing data silos by bringing together disparate data sources onto a common backbone, creating an interoperable conduit for the seamless movement of customer information.

By integrating essential data services like eKYC, land records, account aggregator, and geo-tagging through open APIs and standards, the platform facilitates real-time data availability when required.

This design allows for paperless and presence-less credit through the digital highway.

With a focus on eliminating barriers to accessing borrower details such as identity, income, collateral, and credit history needed for credit decisions, the Public Tech Platform enables faster turnaround times and enhances efficiency in the lending process.

Open Architecture and APIs

• Encourage innovation by fintech players
• Seamless connectivity for financial sector players

The open architecture of the Public Tech Platform, coupled with accessible APIs and interoperability standards, fosters collaboration and innovation among fintech firms, startups, and financial sector entities. This design adheres to principles of openness, flexibility, and transparency.

The platform’s open APIs and common standards enable fintech firms and startups to easily develop innovative credit solutions and seamlessly connect with lenders. Moreover, financial sector entities like banks, NBFCs, MFIs, and credit bureaus can readily integrate into the platform through these open interfaces.

By providing core building blocks for developers to create value-added services on top of the platform, it promotes an ecosystem for collaboration around digital lending. The integration layer itself remains technologically neutral while offering flexibility to incorporate new use cases and partners.

This approach allows market innovations to thrive on a robust public digital infrastructure while ensuring easy connectivity and open access for frictionless and scalable credit delivery.

Phased Rollout Approach

• Controlled access to information providers initially
• Focus on specific use cases

The phased rollout approach is a strategic plan implemented by the RBI to ensure the successful implementation of the Public Tech Platform for frictionless credit.

This approach involves a gradual and controlled introduction of the platform, starting with a pilot launch on August 17th, 2023.

The initial phase will focus on integrating essential data services required for delivering high-impact credit products such as KCC loans, dairy loans, MSME business loans, personal loans, and home loans.

Access to the platform will be initially restricted to selected information providers like UIDAI and designated state land records departments.

By adopting this incremental approach, the RBI aims to test the platform’s infrastructure with a limited number of providers and applications before expanding its coverage in terms of data sources, lending partners, credit products, and geographic spread.

This prudent roadmap ensures a smooth rollout of the platform across remote regions of the country, enabling digital credit flow in even the most inaccessible areas.

Pilot Phase Details

Key Credit Products Covered

• KCC Loans, Dairy Loans, MSME Loans, Personal Loans, Home Loans
• Offered through participating banks

Covered under the pilot launch of the Public Tech Platform are key credit products such as Kisan Credit Cards, dairy loans, MSME loans without collateral, personal loans and home loans.

These products have been carefully selected to address the specific needs of farmers, animal husbandry workers, small businesses, and retail borrowers in both urban and rural areas.

By integrating these credit products into the platform, it aims to showcase the benefits of streamlined data flow for enhanced credit accessibility.

The participation of banks in the pilot will not only help build confidence in the platform’s capabilities for seamless lending but also provide valuable feedback to improve its functionality based on actual user experience.

This mix of products and banking partners creates an ideal testbed for the platform before expanding its scope in subsequent phases.

Integration of Services and Data Sources

• Aadhaar, Land Records, Satellite Data, PAN Validation, etc
• Account Aggregators, Dairy Cooperatives
• Enabling comprehensive credit assessment

Integration of diverse data services and sources is a key aspect of the Public Tech Platform pilot, allowing for swift and comprehensive credit assessment. The platform aims to onboard various data sources including:

• Aadhaar e-KYC for digital identity verification
• Land records from participating state governments for establishing ownership
• Satellite data for remote property identification
• PAN validation for income estimation
• Account aggregators for a consolidated view of borrower finances

Moreover, unique data from partners like dairy cooperatives regarding milk production and supply details will also be incorporated.

Way Forward

Expanding Scope after Pilot Period

• More products, information providers, lenders
• Adapt platform continually to evolving digital infrastructure

To facilitate the expansion of the pilot period, various lending products and information providers will be progressively incorporated into the platform’s framework.

This includes adding more lending options such as MSME loans, two-wheeler loans, microfinance products, and education loans.

Additionally, the range of information providers will be expanded to include government databases like GSTN, passport authority, DOT, as well as private sources like telecom, e-commerce, and PAYG utilities.

The integration will involve diverse credit providers including banks, NBFCs, MFIs, and fintech lenders.

Furthermore, efforts will be made to onboard more states and grassroot-level providers to enhance geographic penetration.

The platform’s architecture will also undergo continuous upgrades to adapt to the evolving digital public infrastructure.

Emerging technologies such as AI/ML, blockchain and IoT will be leveraged for advanced analytics, security measures and automation features.

Ultimately, this expansion aims to position the platform as a go-to digital backbone for seamless and inclusive credit delivery across India.

Envisaged Benefits

• Increased efficiency, reduced costs
• Faster disbursement, scalability
• Streamlined and collaborative system
• Wider financial inclusion

The envisioned benefits of the platform include:

• Improved operational efficiency
• Faster loan processing times
• Secure collaboration among ecosystem players
• Expanded credit delivery
• Informed credit decisions through integrated data
• Last-mile financial inclusion
• Stimulation of entrepreneurship and livelihoods
• Introduction of collaboration, agility, transparency, and boundarylessness into the lending system

By bridging data silos and enabling straight-through processing, the platform can enhance operational efficiency in the lending process. This will result in lower costs for lenders and faster loan turnaround times for borrowers.

The digital workflows enabled by the platform will further reduce loan processing times from days to minutes. Additionally, secure collaboration among ecosystem players will promote innovation and drive continuous improvement in credit delivery.

The integrated data fabric will provide a holistic view of borrowers’ profiles which will lead to more informed credit decisions based on comprehensive information.

Furthermore, by unlocking capital for underserved sections such as MSMEs and low-income groups, the platform can contribute to last-mile financial inclusion. Access to affordable credit can stimulate entrepreneurship and livelihoods by providing necessary capital for business expansion or investment in income-generating activities.

Overall, the introduction of collaboration, agility, transparency, and boundarylessness into the lending system through this public tech platform has immense potential to transform India’s credit landscape for both providers and consumers alike.

Significance for India

• Leveraging technology for credit delivery
• Innovation towards digital public infrastructure
• Pathway for India as a global fintech hub

An important aspect of the Public Tech Platform is its potential to contribute significantly to India’s economic growth and development. By leveraging technology for efficient and inclusive credit delivery, the platform aims to accelerate financial inclusion and enable timely and affordable credit penetration across geographies and income segments.

This strategic stride towards crafting advanced digital public goods aligns with India’s vision for collaborative digital public services. The platform not only establishes standards for responsible AI adoption in credit processes but also institutionalizes data privacy and security frameworks, cementing trust in digital finance.

Furthermore, as a transparent and democratic credit infrastructure, it can catalyze entrepreneurship and livelihood progress, thereby underscoring India’s commitment to utilizing technological solutions at scale for the benefit of aspiring populations.