India’s Digital Infrastructure Is Opening a New Credit Route for MSMEs

Overview: India’s Micro, Small, and Medium Enterprises (MSMEs) face an estimated ₹20-25 lakh crore credit gap, primarily due to collateral constraints and informal record-keeping. Reserve Bank of India Governor Sanjay Malhotra, speaking at the Global Fintech Fest 2026, highlighted how digital innovations – specifically cash-flow-based underwriting, Account Aggregators, and the Unified Lending Interface (ULI) – are creating data-driven credit routes.

From collateral and paperwork to cash flows and data, India’s lending ecosystem is changing how small businesses can demonstrate their creditworthiness.

For years, getting formal credit has been a challenge for many small businesses. A viable enterprise may have steady sales and regular cash flows, yet struggle to obtain finance because it lacks sufficient collateral, a long credit history, or easily accessible financial records.

That equation is beginning to change.

Reserve Bank of India Governor Sanjay Malhotra shared crucial insights into this shift at the Global Fintech Fest 2026. He observed that fintech’s most tangible impact has been in credit delivery to MSMEs, driven primarily by cash-flow-based lending, Account Aggregators, and the Unified Lending Interface (ULI). 

These developments are helping lenders extend formal, collateral-light credit to businesses that previously remained outside traditional underwriting models.

MSME Credit Is Changing

The RBI’s Expert Committee on MSMEs had in 2019 estimated India’s overall MSME credit gap at around ₹20-25 lakh crore. While this is an established estimate and not a fresh 2026 measurement, it reflects the scale of the financing challenge faced by the sector.

The issue is not necessarily a lack of business activity. For many enterprises, the difficulty has been converting that activity into reliable information that a lender can assess. Digital infrastructure is helping bridge that information gap.

Cash Flow Becoming a Credit Signal

Under cash-flow-based lending, a lender can look beyond physical assets and consider the financial activity of the business. Depending on the lender and loan product, this may include banking transactions, GST information, financial statements, and other consent-based financial data.

This does not mean that digital lending has made every business loan collateral-free. The more accurate description is collateral-light lending, where a broader financial picture can complement traditional credit assessment.

The Role of Account Aggregator and ULI

The Account Aggregator (AA) framework allows financial information to be shared digitally with an authorised financial institution after obtaining the customer’s consent. This gives lenders a more complete picture of a borrower’s finances while reducing repetitive documentation.

The Unified Lending Interface (ULI) is another key part of India’s digital public infrastructure. It is designed to make relevant digital information and services seamlessly accessible to lenders, helping streamline credit assessment and delivery. Together, these developments point towards a lending environment in which a business’s financial trail becomes a central component of its credit story.

What Should MSMEs Do Now?

Technology may simplify the lender’s side of the process, but businesses still need to maintain a credible financial foundation. MSMEs preparing for future funding should focus on:

• Keeping books and banking records properly maintained
• Staying current with GST filing and corporate tax compliances
• Obtaining Udyam Registration where eligible
• Maintaining a healthy credit and repayment history
• Preparing realistic financial projections for expansion or project finance

Documentation will vary by lender and loan product. However, organised records make it easier for a lender to understand the business and evaluate its repayment capacity.

Setindiabiz Support

Setindiabiz helps businesses build this credit-readiness foundation through MSME Registration, ongoing accounting, and preparation of bank funding proposals.

A comprehensive proposal brings together the business plan, project cost, means of finance, market assessment, and projected financials that a lender requires. Setindiabiz’s service for a Project Report for Bank Loan covers projected P&L, balance sheets, cash flow statements, and CMA data required during credit evaluation.

The objective is not to guarantee loan approval, but to ensure that when a business approaches a bank or NBFC, its legal registration, financial compliance, and credit proposal are fully prepared.

The Bigger Picture

India’s digital lending ecosystem is moving towards a model where financial data complements traditional collateral and documentation. For MSMEs, the path forward is straightforward: formalise the business, maintain clean financial records, and build a verifiable cash-flow trail.

The future of credit is increasingly digital, but being credit-ready remains an essential business fundamental.