India is implementing a new digital credit assessment model for micro, small and medium enterprises (MSMEs) as part of the government’s Budget 2024-25 initiatives, expanding upon the country’s growing digital financial infrastructure. The model aims to simplify lending processes through digital technologies and transaction-based assessments, supporting India’s recent advances in digital identity and payment systems, including the enhanced UPI transaction framework.
The system introduces digital transaction-based lending capabilities, moving away from traditional collateral requirements in favor of cash flow-based credit decisions. A new Unified Payments Interface (UPI)-powered digital lending facility is scheduled to launch on March 6, 2025, supported by a dedicated portal that will integrate major public and private sector banks. The development is part of India’s broader digital transformation efforts, including the enhanced Central KYC Registry scheduled for 2025.
The Union Budget 2025 has doubled the credit guarantee cover for MSMEs to Rs 10 crore, which is projected to generate additional credit of Rs 1.5 lakh crore over five years. The initiative also includes the introduction of specialized credit cards with Rs 5 lakh limits for micro enterprises registered on the Udyam portal, with plans to issue 10 lakh cards in the first year. The credit expansion builds upon India’s successful implementation of digital benefit systems, which have already saved approximately $40 billion through improved fraud prevention.
Implementation progress shows 11 Public Sector Banks have extended the new assessment model to existing customers, while seven banks have expanded it to new customers. The Small Industries Development Bank of India (SIDBI) has opened 21 new branches in MSME clusters during 2024-25 to support the initiative.
Finance Minister Nirmala Sitharaman highlighted the significance of MSMEs in India’s manufacturing sector, noting that “Currently, over one crore registered MSMEs, employing 7.5 crore people and generating 36 percent of our manufacturing, have come together to position India as a global manufacturing hub.”
“In the MSME ecosystem, what is needed is cheaper credit, faster credit, and timely credit. That really is the mantra,” said Joint Secretary Ateesh Singh. He added that technological innovation will be crucial in improving bank lending processes.
Sources: Financial Express, Zee Business, Asian Banking & Finance, India Shipping News
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