In a step towards improving access to credit for Micro, Small and Medium Enterprises (MSMEs), the Indian government has officially launched the Digital Credit Assessment Model—a tech-driven solution aimed at transforming how loans are sanctioned to small businesses. The initiative, first introduced in the Union Budget 2024-25, was formally unveiled by Finance Minister Nirmala Sitharaman and Minister of State for Finance Pankaj Chaudhary during a post-budget interaction held in Visakhapatnam.
Designed to reduce the dependency on traditional credit ratings and collateral-based lending, the new model empowers public sector banks (PSBs) to independently assess an MSME’s creditworthiness using real-time, transaction-based data. This system is particularly significant for small businesses that may not have formal financial records or a strong credit history.
The model uses an integrated digital framework that pulls data from multiple verified sources. These include Permanent Account Number (PAN) verification via National Security via Depository Limited (NSDL), mobile and email authentication through One-Time Password (OTP), Goods and Services Tax (GST) data via Application Programming Interference (APIs), bank statements through account aggregators, income tax return uploads, credit scores from commercial and consumer bureaus and fraud detection protocols. Together, this provides a comprehensive and automated evaluation of an MSME’s financial health.
By shifting from asset and turnover-based assessments to data-backed digital scoring, the model not only streamlines the loan application process but also enables quicker, more objective and transparent credit decisions. MSMEs stand to benefit from reduced paperwork, instant in-principle sanctions, fewer branch visits and no need for physical collateral under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
This initiative is part of the government’s broader push toward digital transformation and financial inclusion, aiming to unlock credit access for millions of small businesses across the country. By modernizing lending processes, the Digital Credit Assessment Model is expected to significantly accelerate economic growth through empowered and better-financed MSMEs.
