Credit Lines via UPI, a boost for MSMEs

April 10, 2023

RBI’s proposal to allow UPI transactions via pre-sanctioned credit lines is being seen as a positive move for BNPL and MSMEs by broadening access to credit and credit-based transactions.

The linking of loan accounts to UPI will bypass the need for physical infrastructure and allow inclusion of borrowers who don’t have access to cards. This is what most BNPL players currently do, albeit on their platforms.

‘’This will enable the linking of UPI to credit lines that are approved by banks for payment transactions of both secured and unsecured lending products like personal and working capital loans,” Mihir Gandhi, Partner – Payments Transformation, PwC India, said.

Restrictions on disbursements into prepaid wallets and cards from credit lines had hurt the business models of several BNPL players, who will now be able to extend credit at lower costs and turnaround times, industry players said.

It will also create a safe mechanism for urgent credit payments to MSMEs, who will be able to use their credit lines to pay vendors, and integrate lenders, borrowers, and borrowers’ payees on one platform.

Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, said that the initiative will enable SMEs to access credit in a hassle-free manner while boosting microcredit. The industry body Assocham too agreed that it would help millions of MSMEs better manage their trade finance.