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Do NBFCs Bring Back the 'Credit on UPI' Question?


The total MSME debt demand in India is estimated at a staggering Rs 106.11 lakh crore, of which Rs 56 lakh crore remains unmet. With around 64 million MSMEs contributing significantly to the Indian economy, the funding requirements for this sector are immense. Non-banking financial companies (NBFCs) are emerging as pivotal players in bridging this critical credit gap, bringing innovative solutions to the table.

The Rise of NBFCs in MSME Financing

Non-banking financial companies (NBFCs) have gained prominence in the financial ecosystem due to their ability to offer tailored financial products, quicker loan processing times, and less stringent documentation requirements compared to traditional banks. This flexibility makes them an attractive option for MSMEs that often struggle with the rigid frameworks of conventional banking.

The Battle for Market Share

The market for MSME lending is fiercely competitive, with various financial institutions vying for a share of the pie. NBFCs have aggressively positioned themselves to capture a significant portion of this market. Their innovative approach and customer-centric models give them a competitive edge over traditional banks. The agility of NBFCs allows them to respond swiftly to the evolving needs of MSMEs, providing customized financial solutions that cater to the specific requirements of small and medium enterprises.

Overcoming the Hurdles

Despite their significant potential, the MSME sector faces considerable challenges in securing timely and adequate financing. Traditional banks have been cautious in extending credit to MSMEs due to the perceived high risk associated with these businesses. This caution has resulted in a substantial credit gap, which NBFCs are stepping in to fill. However, NBFCs themselves face challenges such as regulatory hurdles, high operational costs, and limited access to low-cost capital.

Leveraging Technology for Financial Inclusion

In recent years, technology has played a crucial role in transforming the financial landscape. The introduction of the Unified Payments Interface (UPI) has revolutionized digital transactions in India, offering a seamless and real-time payment experience. The question now arises: can UPI be leveraged to facilitate credit for MSMEs?

Credit on UPI: A Game-Changer for MSMEs?

The concept of 'Credit on UPI' involves integrating credit facilities with UPI transactions, potentially enabling MSMEs to access instant credit while making UPI payments. This integration could be a game-changer for MSMEs, providing them with immediate liquidity and enhancing their operational efficiency.

The Mechanics of 'Credit on UPI'

Integrating credit facilities with UPI would allow MSMEs to access a line of credit directly through their UPI-enabled apps. When an MSME makes a payment via UPI, the platform could automatically draw from the credit line if the business's bank balance is insufficient. This seamless access to credit can significantly reduce the financial stress on MSMEs, ensuring that they have the necessary funds to manage their operations smoothly.

The Role of NBFCs

NBFCs, with their innovative approach and flexibility, are well-positioned to make 'Credit on UPI' a reality. By collaborating with fintech companies and leveraging advanced technologies such as artificial intelligence and machine learning, NBFCs can create a robust ecosystem for digital credit. These collaborations can help in building sophisticated credit assessment models that can evaluate the creditworthiness of MSMEs in real time, facilitating instant credit approvals.

Advantages of 'Credit on UPI' for MSMEs

Immediate Liquidity: Access to instant credit can provide MSMEs with the necessary liquidity to manage their day-to-day operations without disruption.

Enhanced Operational Efficiency: Seamless access to credit through UPI can streamline the financial operations of MSMEs, reducing the time and effort spent on securing traditional loans.

Improved Cash Flow Management: With instant access to credit, MSMEs can better manage their cash flows, ensuring timely payments to suppliers and avoiding delays in production.

Greater Financial Inclusion: 'Credit on UPI' can bring more MSMEs into the formal financial system, promoting greater financial inclusion and enabling these businesses to grow and thrive.

The Path Forward

For 'Credit on UPI' to become a reality, there needs to be a collaborative effort between regulatory bodies, financial institutions, and technology providers. The government and regulatory authorities must create a conducive environment that encourages innovation and facilitates the seamless integration of credit facilities with UPI. Financial institutions, including NBFCs, must invest in technology and build strong partnerships with fintech companies to develop robust credit assessment and approval systems.

Regulatory Support and Framework

A supportive regulatory framework is crucial for the successful implementation of 'Credit on UPI'. Regulatory bodies need to establish clear guidelines and policies that promote transparency, protect consumer interests, and ensure the security of digital transactions. Encouragingly, initiatives such as the Reserve Bank of India's regulatory sandbox for fintech innovations provide a promising platform for testing and refining such models.

Technological Advancements

Advancements in technology are pivotal to the success of 'Credit on UPI'. Leveraging technologies like AI and machine learning can enhance the accuracy of credit assessments, ensuring that only creditworthy MSMEs receive instant credit approvals. Additionally, blockchain technology can be employed to ensure the security and transparency of digital transactions, further boosting the confidence of MSMEs in using 'Credit on UPI'.

Collaboration and Partnerships

Collaboration between NBFCs, banks, and fintech companies is essential for creating a seamless and efficient 'Credit on UPI' ecosystem. Such partnerships can bring together the strengths of each stakeholder, combining the financial expertise of NBFCs and banks with the technological prowess of fintech companies. These collaborations can drive innovation, streamline processes, and deliver a superior credit experience for MSMEs.


The potential of 'Credit on UPI' to revolutionize MSME financing in India is immense. By providing MSMEs with seamless access to instant credit, this innovative solution can address the significant credit gap in the sector, promoting financial inclusion and driving economic growth. NBFCs, with their innovative approach and flexibility, are well-positioned to lead this transformation. However, realizing the full potential of 'Credit on UPI' requires a concerted effort from regulatory bodies, financial institutions, and technology providers. Together, they can create a robust ecosystem that empowers MSMEs and paves the way for a brighter economic future for India. Ready to transform your MSME financing? Discover how QuickSettle can provide you with instant credit solutions tailored to your needs. Visit QuickSettle now and take the first step towards seamless financial empowerment.

Frequently Asked Questions (FAQs)

What is 'Credit on UPI' and how do NBFCs play a role in it?

'Credit on UPI' refers to the ability to access credit directly through the Unified Payments Interface (UPI) platform. NBFCs facilitate this by integrating UPI with their lending platforms, allowing users to apply for and receive loans seamlessly through UPI-based transactions.

How do NBFCs ensure security and reliability in 'Credit on UPI' transactions?

NBFCs implement robust security measures such as two-factor authentication, encryption protocols, and secure APIs to ensure the safety of transactions conducted via UPI. They also adhere to RBI guidelines and use secure channels for data transmission.

What are the advantages of 'Credit on UPI' offered by NBFCs?

The advantages include instant loan disbursal, simplified application processes, and enhanced convenience through seamless integration with UPI apps. Borrowers can apply for loans anytime, anywhere using their UPI IDs, bypassing traditional paperwork and delays.

Are there any eligibility criteria or limitations for accessing 'Credit on UPI' through NBFCs?

Eligibility criteria typically include a valid UPI ID linked to a bank account, a minimum age requirement, and a satisfactory credit score. Some NBFCs may also consider income levels and employment status when approving loans through UPI.

How can individuals benefit from 'Credit on UPI' services provided by NBFCs?

Individuals can benefit from quick access to funds during emergencies, lower processing times compared to traditional loans, and the flexibility to manage repayments directly through their UPI-linked accounts. This service enhances financial inclusion by reaching underserved segments of the population.


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