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How RBI’s latest move to allow NBFCs, PSOs for Aadhaar eKYC license will ease MSME lending process

Credit and Finance for MSMEs: NBFCs and PSOs “desirous of obtaining Aadhaar  Authentication License - KYC User Agency (KUA) License or sub-KUA License (to perform  authentication through a KUA), issued by the UIDAI, may submit their application, RBI said  in a notification. 

Credit and Finance for MSMEs: Allowing non-banking financial companies (NBFCs) and payment system operators (PSOs) to get Aadhaar e-KYC authentication license from the Reserve Bank of India (RBI) will help MSME lenders fasten the time taken to onboard borrowers and disburse credit to them, multiple players in small business lending told Financial Express Online. The central bank in a notification said that NBFCs and PSOs “desirous of obtaining Aadhaar Authentication License – KYC User Agency (KUA) License or sub-KUA License (to perform authentication through a KUA), issued by the UIDAI, may submit their application.” 

The Finance Ministry on May 9, 2019, had provided a detailed procedure for processing of applications under Section 11A of the PML Act, 2002 for use of Aadhar authentication services by entities other than banking companies. 

“The borrowing experience is going to improve with this. There are multiple stages in the process of customer onboarding, verification of KYC, etc., as per the regulation. This is often time-consuming as the borrower provides copies of documents that are then verified and tested etc. So that manual process will get eliminated to a great extent. In that sense, it is beneficial. When the friction is removed, the customer appears a lot more interested in the offering. We are evaluating very seriously to get the license,” Arun Nayyar, CEO, NeoGrowth Credit told Financial Express Online. 

According to Monish Anand who runs MyShubhLife, the offering from RBI would certainly help proprietors of microbusinesses. “There is definitely going to be an advantage for such small and micro enterprises because when you lend to such businesses, proprietors? own KYC is also very important as much as it is for other businesses. The authentication license will help in smoothing the lending process as well and also shorten the time frame for the disbursal of loans. KYC today is paper-based and validation is quite a task while e-KYC, which is an OTP-based authentication, makes the entire process much faster and

streamlines lending as authentication can be done instantly. This will help lenders get more MSME borrowers onboard,” Anand told Financial Express Online. 

The application format provided by the RBI for applying for the authentication license seeks information related to the number of customers at the end of the last three financial years, processes currently being used for establishing the identity of customers (for example, certified copy of officially valid documents, offline verification etc.), details of incidents of data breach including cyber security breach, if any, in the last three years at the entity applying for the license, and whether any penal action has been taken by the RBI / SEBI in the last three years against the applicant, among other details. 

“This will help in raising credit as we have a lot of self-help groups, which are already linked to the banking system, looking to raise credit. So, this is a good move overall in fastening the authentication process and lending. However, lending through government scheme has not helped much as eventually loans have to be paid back with interest while moratorium has been of little help only,” Shashi Singh, CEO, SS Exports, and Chairperson, Consortium of Women Entrepreneurs of India told Financial Express Online. 

“When you do eKYC based on Aadhaar, it will help in terms of easing payments system wherein you can have smooth customer onboarding process instead of the cumbersome process of validating physical KYC docs. The new move by RBI will certainly help in reaching out to more MSME borrowers and reducing the turnaround time in processing the loan applications,” Rajiv Ranjan, Founder Director, PaisaDukan told Financial Express Online.