The government has introduced a Digital Credit Assessment Model to streamline loan approvals for Micro, Small, and Medium Enterprises (MSMEs) by utilizing transaction-based scoring. This initiative, announced in the Union Budget 2024-25, was officially launched by Finance Minister Nirmala Sitharaman and Minister of State for Finance Pankaj Chaudhary during a post-Budget interaction in Visakhapatnam.

The new model allows public sector banks (PSBs) to evaluate MSME creditworthiness independently, reducing reliance on traditional credit ratings. Moving away from asset or turnover-based assessments, it enables lending to MSMEs that lack formal accounting systems. By leveraging digitally verifiable data, the system automates credit evaluation and ensures faster, objective decision-making.

The model integrates multiple digital verification processes, including PAN authentication via NSDL, mobile and email verification through OTP, GST data retrieval via API services, bank statement analysis using account aggregators, ITR uploads and verification, credit insights from commercial and consumer bureaus, and fraud detection via API-enabled checks. This approach shifts the focus from collateral-based lending to assessing businesses based on their financial transactions.

For MSMEs, this initiative is expected to simplify the loan application process by reducing paperwork and the need for branch visits. It also accelerates approvals with instant in-principle sanctions, eliminates the requirement for physical collateral under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), and reduces turnaround time through automation.

As part of the government’s broader digital transformation strategy, this model aims to enhance financial inclusion, making it easier for MSMEs to access credit and contribute to economic growth.