RBI regulated Account Aggregator network makes it easier for MSMEs to access credit: ICRIER-ADBI report

As per the June 2023 edition of the ICRIER-Asian Development Bank Institute’s (ADBI) Policy Brief, MSMEs face substantial challenges of credit, despite their significant role in boosting global economy.

The ADBI highlights the lack of information infrastructure for MSMEs, which exacerbates the information gap between lenders and borrowers. Unlike large enterprises, MSMEs often have minimal connections to capital markets, and financial institutions, find it costly to monitor small loans continuously. Consequently, MSMEs are viewed as riskier investments by banks and other lenders.

To counter this credit constraint, India is leveraging its Digital Public Infrastructure (DPI) to enhance financial access for MSMEs. The report highlights innovation and a comprehensive set of digital tools such as Aadhar, the country’s unique identity number. Aadhar is used as a foundation for electronic know-your-customer (eKYC) processes and for Aadhaar-enabled payments system.

Then there is the account aggregator (AA) network regulated by RBI, which enables individuals to securely share their financial information from one bank or financial institution to another within the network. This digital exchange of financial data helps to bridge the information gap between lenders and borrowers, making it easier for MSME’s to access credit.

While the report noted that MSMEs continue to face significant financial hurdles, India’s innovative use of digital infrastructure presents a promising solution. By enhancing financial inclusion through tools like India Stack and the AA network, the country aims to close the credit gap and provide MSMEs with better access to the financial resources they need to thrive.