India Stack has revolutionised several processes within the credit ecosystem, in turn leading to financial inclusion.
Key Highlights
- The development of Aadhaar, GSTN, and Udyam has resolved the problem of identification.
- Account Aggregators have allowed the transmission of real-time financial data.
- DigitalLocker helps store authentic documents.
While MSMEs contribute to around 29.2% in the country’s GDP, they’ve often struggled to access credit from financial institutions due to multiple inefficiencies in the lending process.
According to a report by the Transunion CIBIL and SIDBI, the supply of credit falls short of meeting the demand for credit from MSMEs, leaving many businesses out of the formal finance network.
Ranging from lack of proper documentation to lags in providing updated information, several problems plague the lending process for businesses, especially in the MSME sector.
However, India Stack is gradually resolving the predicament.
What is India Stack?
India Stack is a set of digital public goods with open APIs that aims to digitalise the economy at minimal costs and address challenges of payments, identity, and data transmission with security.
Comprising of three layers, namely the Identity Layer, the Payment Layer, and the Data Layer, it consists of several digital goods like the Aadhaar, DigiLocker, Udyam, UPI, etc.
Identity Layer
It comprises of Aadhaar, DigiLocker, GSTN, and Udyam system.
Payment Layer
It comprises of Unified Payments Interface (UPI) and Bharat Bill Payment System (BBPS).
Data Layer
It comprises of Account Aggregators, which function within the Account Aggregator Network.
India Stack and access to credit
The digital goods provided by the India Stack resolve several hurdles that MSMEs face while availing financial services.
Aadhaar, GSTN, and Udyam have resolved one of the most cardinal problems for lenders- determining the credibility of the borrower.
Launched in 2009, Aadhaar is a unique identification number linked to the biometrics of the individual.
Similarly, GSTN is a 15-digit identification number allotted to businesses and individuals having a valid GST Registration Certificate under the Goods and Services Tax regime.
At the same time, to formalise MSMEs and allow them to avail government schemes and credit from formal sources, an UDYAM Registration system was put in place.
While Aadhaar, GSTN, and Udyam help borrowers put forth their identity documents, e-sign (a product built atop Aadhaar) allows borrowers to digitally sign any document for authentication.
Combined with that, DigiLocker helps borrowers store their authenticated and legally valid documents at one place for accessibility and convenience. This resolves the problem of documents getting misplaced or damaged.
Similarly, the Bharat Bill Payment System (BBPS), a platform for paying utility bills provides proof of the functioning of the business at the address provided, another requisite for availing credit from financial institutions.
Launched in 2021, Account Aggregators are RBI-licensed entities that enable the transmission of financial data of users with their consent. By allowing the flow of data from one institution to another, these entities reduce the turnaround time in producing verifiable data and help lenders access real-time financial information at the granular level.
At the same time, they provide a conducive ground for innovation with lenders offering customised credit products based on the information retrieved through Account Aggregators.
The combination of these public goods of India Stack has not only helped in the digitalisation of various processes of the financial ecosystem, but also democratised lending and reduced the costs associated with it.
The offerings of the India Stack when amalgamated within the open networks like ONDC and OCEN hold the potential to not only meet the credit demand of MSMEs but also revolutionise the lending landscape.
