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On the sidelines of the Monetary Policy Meet (MPC) held on Thursday, the Reserve Bank of India (RBI) announced an open architecture-digital public tech platform to enable easy access to loans.

Developed by the Reserve Bank Innovation Hub (RBIH), the idea of the platform is to give a plug-and-play model for financial sector players to come and integrate their systems using open Application Programming Interfaces (APIs) and standards.

The platform would enable lenders to give out loans, including lending to MSMEs, personal loans, KCC, and dairy loans by making use of digital data points and information from multiple sources, and hence easily access the creditworthiness of the borrow.

Easy access to digital loans

One of the biggest challenges for giving out digital loans to the underserved section has been access to integrated data. In order to give a loan to, say a farmer, a bank would need to enable interaction within its loan origination systems, starting from access to digital land records, KYC, credit score, or other details like soil health etc.

The data required is available with different entities like central and state governments, account aggregators, banks, credit information companies, digital identity authorities, etc. However, they are in separate systems, creating hindrances in the frictionless and timely delivery of rule-based lending.

The Reserve Bank of India (RBI) has been working on a pilot, starting with Kisan Credit Card (KCC) loans of less than Rs 1.60 lakh, since September last year in order to test a system where lenders can have access to all the data points digitally at one place.

“The results have been encouraging,” said the central bank’s statement on development and regulatory policy released on Thursday. 

Moving forward, the RBI is now looking to expand the scope to all types of digital loans with the open architecture-digital public tech platform. 

The details of how the system would operate are yet to be released. 

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“The platform is intended to be rolled out as a pilot project in a calibrated fashion, both in terms of access to information providers and use cases. It shall bring about efficiency in the lending process in terms of reduction of costs, quicker disbursement, and scalability,” it said. 

Meanwhile, the KCC pilot is currently underway in select districts of Madhya Pradesh, Tamil Nadu, Karnataka, UP, and Maharashtra.

“The pilot tested end-to-end digitalisation of the lending process in a paperless and hassle-free manner. It enables doorstep disbursement of loans in assisted or self-service mode without any paperwork. A similar pilot is being carried out for dairy loans based on milk pouring data with Amul in Gujarat,” it further added. 

Recently, the RBI put up a stall at Gandhinagar’s Mahatma Mandir Convention Centre—the venue of the third meeting of G20 finance ministers and central bank governors (FMCBG) to give a demo of the pilot. 

It showcased how digitised land record data can be used to sanction and disburse paperless loans without the farmer having to visit the bank branch. A survey conducted by the RBI revealed that processing of farm loans used to take two to four weeks and used to cost about 6% of the loan’s total value.