NITI Aayog has urged lenders to use UPI transaction data to improve credit access for small businesses. With India's credit-to-GDP ratio of 53-55% lagging behind global peers, the government aims to adopt cash-flow-based lending models to bridge the funding gap for MSMEs and support the manufacturing sector.
At the Global Fintech Fest 2026, NITI Aayog Vice-Chairman Dr. Ashok Kumar Lahiri emphasized that India must leverage digital financial tools to address a major bottleneck in the economy: the limited availability of credit for smaller businesses. Currently, India’s credit-to-GDP ratio stands between 53% and 55%. This is significantly lower than the 150% to 170% range seen in developed economies, suggesting that many micro, small, and medium enterprises (MSMEs) are not getting enough capital to expand.
The proposal centers on using the vast amount of transaction data generated by the Unified Payments Interface (UPI) and the Unified Lending Interface (ULI). Currently, banks often rely heavily on traditional collateral—such as physical property or fixed assets—to approve loans. This approach often leaves out smaller, creditworthy businesses that may not have large assets but do have steady daily sales. By using digital transaction data, lenders can switch to a cash-flow-based assessment. This allows banks to better understand the true financial health and repayment capacity of a small business, potentially reducing the risk of bad loans while increasing credit flow.
This shift in lending strategy is part of a broader government objective to scale up India’s manufacturing sector. While the sector’s contribution to GDP has shown recent improvement, it still trails behind global leaders. To compete effectively, the government is focusing on investment in key industries such as chemicals, textiles, telecom equipment, and solar PV manufacturing. Achieving higher growth in these areas requires a significant increase in the investment-to-GDP ratio, which currently hovers between 30% and 34%.
However, the path to this growth is not without challenges. The global economic environment remains complex, with risks such as tariff-related trade barriers and the weakening of international trade agreements. Domestically, while the current account deficit has remained stable at under 1%, there are concerns regarding the fiscal space of state governments, as rising debt and expenditure could limit available resources for public infrastructure projects. Furthermore, as the digital payments ecosystem expands rapidly, stakeholders are paying close attention to data privacy and the potential for high market concentration within the fintech sector.
For investors and industry observers, the next important update will be how quickly financial institutions adopt the Unified Lending Interface (ULI) and cash-flow-based lending models. The success of this initiative will be measured by whether it translates into higher credit growth for MSMEs and, subsequently, better capital availability for India’s growing manufacturing base.