India has tapped local digital payments network to widen access to credit, aiming to allow banks to deliver short-term loans in a more secure and secure way.
Following this announcement, India is currently pushing banks, borrowers, and financial institutions to make loans by leveraging its local digital payments network. This process represents an effort to reach the large populations of underserved individuals through credit.
In addition, the National Payments Corporation of India, which runs the Unified Payments Interface, also started making its infrastructure available to banks in order to deliver short-term loans to small businesses such as vegetable vendors and food stall operators. The system is also part of the government’s India Stack, a set of digital tools that were developed in order to allow the country’s people to prove their identity, access benefits, and make payments on their phone.
More information on the announcement
According to the Financial Times, bank account ownership has risen significantly in India to 89% in 2024, from 53% a decade earlier. However, 16% of accounts are not active, compared with the 4% average of other low- and middle-income economies. At the same time, while users have grown accustomed to using UPI for daily transactions and money transfers, its facilitation of credit remains limited across the country.
With this in mind, banks can now link credit lines, including loans backed by gold, property, fixed deposits, shares, and mutual funds, to users’ UPI apps. From the end of August 2025, the disbursed money can then be leveraged for merchant payments, peer-to-peer transfers, or cash withdrawals. Because credit lines through UPI remain a relatively new product, many banks will be required to upgrade their platforms.
While UPI is set to provide the infrastructure through which banks offer loans, the process of underwriting and assessing credit risk will be done by lenders, as India’s regulators will be expected to monitor that in a responsible manner. Furthermore, banks that lend through UPI will have the possibility to benefit from a user’s repayment history on the platform, and collection costs will be close to zero because of the NPCI’s automated clearinghouse and payment facilities.
However, there has been some pushback against UPI, as several Indian states have in recent months started demanding that small vendors such as street-side fast-food and tea sellers, once cash-based businesses, provide UPI sales data as they try to bring them into the tax net. Those initiatives sparked uproar, as many market vendors in cities such as southern Bengaluru are now refusing to take UPI payments.
