UIDAI – Unique Identification Authority of India

As per the latest RBI report, loans outstanding to MSMEs in India are growing by 14% year over year. However, as a small business owner, you may often face several challenges to get a business loan. Getting a loan for business becomes trickier when you go through the traditional loan application process.

The complication in the form of stringent documents required for business loans and lengthy approval times delays your day-to-day business operations. However, an effective solution has recently emerged in the form of UIDAI – Unique Identification Authority of India. UIDAI simplifies the business loan application process using digital identification and data integration.

This article aims to help you understand how UIDAI helps to improve your business loan application experience by reducing paperwork, digital verification of identity, and faster approval times.

Understanding UIDAI, Its Ecosystem, and Aadhaar 

Data from the World Bank says that India has over 1.42 billion population as of 2023. Delivering government services to such a big population has always been a challenge. To address this challenge, the Indian government established the Unique Identification Authority of India (UIDAI) in 2009. UIDAI is the statutory authority that issues Aadhaar, a 12-digit unique identification number to Indian residents. Under the UIDAI ecosystem, there are primarily two stakeholders: registrars and enrolment agencies.

Registrars are usually state governments, central ministries, or public sector companies authorised by UIDAI to enroll individuals. They are responsible for making a strategy to enroll a large population in a given area. They also ensure enrollment of persons with disability or tribal communities.
Enrollment agencies work under the guidance of registrars. They are the personnel who are responsible for enrolling individuals for Aadhaar. They verify the physical documents, collect biometric and demographic data, and share this back with UIDAI for Aadhaar number allotment.  

Now, Aadhaar is a digital identification system. It captures a person’s biometric and demographic data such as fingerprints, iris scans, and facial photographs. At the backend, an individuals unique Aadhaar number is combination of these records. This unique Aadhaar number serves as reliable proof of identity and address for Indian residents. By leveraging UIDAI’s secure infrastructure, the government ensures that:

1. Government subsidies and benefits reach directly to the intended beneficiaries.
2. Populations residing in remote villages of India are financially included by opening bank accounts or giving them access to MSME loans.
3. Population pay their due taxes on time by linking Aadhaar with Permanent Account Number (PAN).

UIDAI issued Aadhaar numbers not only help governments but also help small business owners looking out for collateral free business loan . Let us look at some of the major benefits that an entrepreneur can get while applying for business loan through their Aadhaar.

Paperless Business Loan Application Process With UIDAI

Getting a line of credit for your small business has traditionally involved a time-consuming process of lengthy paperwork and other processes. It typically requires you to carry physical documents like identity proofs, financial statements, registration certificates, income proof, address proof, etc. With UIDAI and digital lending platforms coming into the picture, your Aadhaar number acts as a strong enough proof.

Thanks to the widespread adoption of Aadhaar, paperless application of business loan is possible today. Online lending platforms such as Flexiloan and other fintech companies are rapidly integrating Aadhaar based authentication into their day-to-day business applications.

By making use of UIDAI’s authentication services, a lender can digitally check some of the preliminary documents such as your identity and credit history from sources like banks and tax authorities. These basic checks help companies to instantly assess your eligibility for business loan. This gives you the benefit of speed, efficiency, and reduced paperwork in the business loan application journey.

Whether you are a small restaurant owner in Jaipur or a textile manufacturer in Ludhiana, you can apply for business loan online with Flexiloan. Its digital platform uses Aadhaar to verify your identity and financial records. This online business loan platform has eliminated the two basic hassles — your in-person presence to the branch and physical documents required for business loan.

UIDAI Powered Authentication of Business Loan Documents   

The traditional Know Your Customer (KYC) process was very challenging for business loan applicants. This is because lenders often require applicants to provide identity proof and financial stability proof. If you are self employed or have multiple sources of income, proving your financial stability through extensive documentation becomes more challenging.

Also, KYC is not a one time process. Lenders have to update the borrower’s information periodically into their system. This becomes another hassle if you have to visit the branch repeatedly to be KYC compliant. 

UIDAI has brought in a lot of ease and efficiency in the KYC system through Aadhaar based authentication using One-Time Password (OTP) mechanism. During the Aadhaar enrolment process, UIDAI records the applicant’s biometric and demographic data in the Central Identities Data Repository (CIDR).

When a business loan applicant needs to authenticate their identity, they share the Aadhaar number with the lender. The lender then sends the Aadhaar number and biometric data to CIDR through a secure communication channel. When an applicant’s data matches with UIDAI’s secure database, the individual’s identity authentication is successfully recorded into the lender’s platform. Also, linking of Aadhaar with PAN card helps lenders evaluate your current tax obligation. This can give them a rough estimate of your current income.

Given the end to end nature of this service being online on new age lending platforms, a proper electronic Know Your Customer (eKYC) check becomes mandatory. Under this eKYC practice, you take a selfie or record a video as per the given instructions. This helps in capturing the biometric of applicants and hence validating their identity using UIDAI’s secure database.

Faster Business Loan Approvals And Disbursals

Typically there are four main steps that a lending company follows to get you business loan :

1. Documentation
2. Verification
3. Business loan eligibility check
4. Business loan disbursal 

As discussed above, with the introduction of UIDAI and Aadhaar based authentication, the process of documentation and identity/address verification through eKYC has become easier – both for the applicant as well as the digital lending platform. Since Aadhar is unique to an individual, it saves the lender’s time to verify that the applicant is not re-applying to the system with a forged identity.

With Aadhaar, lenders can also easily track transfer of government subsidies, benefits, and other financial assistance credited to their bank account. This helps speed up their process to assess the applicant’s business loan eligibility.

All these services enabled by UIDAI significantly reduce the business loan approval times. Typically the whole application process takes less than 48 hours to get the business loan amount disbursed to your account.

How UIDAI Is Bridging The Financial Gaps 

Earning a livelihood is one of the biggest challenges to a majority of India’s population. They often don’t have formal identity proof. The UIDAI is doing a great job by reaching out to remotest villages of India and enrolling its population into Aadhar. This does not only give them a formal identity proof but also enables them to avail financial services such as bank accounts and MSME loans.

Let us look at a couple of cases how UIDAI is helping to bridge the financial gaps:

• Women-owned businesses face difficulty of societal biases and lack of collateral. This usually leaves them dependent on others for any financial help. Enrolling into Aadhaar is helping them establish their own identities and build credit histories easily.
• Many small farmers lack access to formal credit due to lack of formal identity proof. With UIDAI, farmers can easily verify their identities. This allows them to access credit facilities such as crop loans, enabling them to invest in better seeds, fertilisers, and agricultural equipment.
• India’s migrant workers are often employed in sectors like construction and manufacturing. Since they continue to move from one place to another for their job, access to financial service is challenging. UIDAI’s program provides them with portable identification. This enables them to open bank accounts, remit money to their families, and avail line of credit.
• Among the numerous challenges, persons with disabilities face lack of access to financial services too. UIDAI’s Aadhaar program addresses this challenge by providing them with formal identification proof as well. This enables them to open bank accounts, apply for government schemes, and have access to line of credit.

Personalisation of Loan Offer Using UIDAI’s Data

With the widespread adoption of Aadhaar, UIDAI now has a wealth of biometric and demographic data of Indian citizens. Fintech companies can leverage these data to analyse income patterns, spending habits, and credit history to tailor the loan product as per your risk profile and repayment capacity.

Let us look at how you can benefit based on customised loan solutions:

Location Based Lending

UIDAI data contains information about residential addresses. Using this data, Fintech companies can offer location-based lending to you. For instance, if you live in rural areas, you may benefit from a loan product with lower interest rates or longer repayment terms.  

Industry Specific Lending

By making use of UIDAI’s data with other government databases such as the Ministry of Micro, Small, and Medium Enterprises (MSME) registry, lenders can design a loan product that matches with the cash flow patterns of the specific industry you operate in. For instance, if you own a manufacturing business, which usually has longer working capital cycles, you can get a term loan that typically has longer repayment periods.

Customised Collateral Requirement

UIDAI data can also give insights about assets owned by you such as real estate or vehicles. Based on this information, lenders can customise collateral requirements for your business loan. For instance, you might benefit by keeping your inventory or equipment as collateral than going for a collateral free business loan, which generally has higher interest rates.

Financial Counseling

By making use of UIDAI’s data with bureau database, lenders can offer financial literacy programs or advisory services. For instance, if you frequently miss loan repayments or have a poor credit history, you could benefit from financial counseling as part of the loan package. This approach not only helps you manage your finance but also helps lenders reduce the risks associated with loan defaults.

Collaborative Lending

Multiple lenders can leverage UIDAI’s data to co-fund the credit. For instance, if you operate in the IT sector, a single lender might not give you a large amount of loan. Looking at your business potential, multiple lenders can come together to mitigate the risk and jointly fund a large amount of funds.

Conclusion

UIDAI and its Aadhar program have significantly improved the  loan application process for small business owners. Digital verification of identity streamlines the whole verification process, reduces paperwork and results in faster approvals.

Furthermore, Aadhaar is helping underprivileged people avail government benefits, open bank accounts and avail loan facilities. UIDAI’s rich database is also enabling lenders to personalise loan offers. Its impact on empowering small businesses is all set to grow stronger in the upcoming days.

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