NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Siddharth Dixit

Small businesses in India have long struggled to gain access to formal credit. Even before the COVID-19 pandemic, a staggering 92 percent of them lacked such access. India’s micro, small, and medium enterprises (MSMEs) sector faces a significant credit gap — between $250 billion and $300 billion. This is because credit access is skewed towards larger firms and those with tangible assets. That leaves MSMEs and individuals without collateral struggling to obtain loans. Even if they find a lender, the loan terms and conditions are often harsh or fail to meet their specific needs.

India’s introduction of a new architecture called Account Aggregator (AA) could revolutionize the national credit landscape , making it easier for businesses and individuals with limited financial backgrounds or asset-backed collaterals to access formal financial institutions.

Photo courtesy of Sandeepachetan.Com travel photography.