A RBI committee led by former SEBI chairman UK Sinha has presented its report on Micro, Small and Medium Enterprises (MSMEs). The committee, in its report, highlights the problems with Udyog Aadhaar and in-person KYC, and lack of infrastructure for cash-lending; it makes recommendations to tackle these issues, among other things. The committee has suggested creating a Universal Enterprise ID and using Google Duo and Facetime to enable video KYC. Here’s a lowdown:

Problems with Udyog Aadhaar

The committee says that while registration of MSMEs became much easier after the introduction of Udyog Aadhaar in September 2015, the biggest problem with it is that relies on self verification while signing up – which isn’t a reliable source of information for lenders and buyers.

  • Udyog Aadhaar is an Aadhaar based electronic platform and requires a few basic entries including PAN details. Registration certificate is also issued electronically. The report says that the Udyog Aadhaar database needed a lot of cleaning up since several retailers have signed up for it.
  • Since the system relies on self-verification, there have been several noted instances where there is no way of knowing is a company that signed up for Udyog Aadhaar existed at all.
  • Building “digital trails” is increasingly becoming an important pre-requisite for access to credit.

Using PAN as Universal Enterprise ID

Since the committee found inconsistencies with Udyog Aadhaar, it recommends setting up of a Universal Enterprise ID – much like an Aadhaar, but for organisations. According to the committee, currently, only a registrar specific ID is issued to companies and there is no common identifier through which an entity/enterprise can be recognised, referenced, and electronically verified – this creates problems for enterprises in getting clearance permissions and approaching banks since a fair amount of cross checking is involved in this process.

Recommendations: To provide all enterprises a unique identifier (ID) across the country and enable electronic verification, electronic KYC, and allow various credentialing and other services to be enabled on top of this unique enterprise ID and ease the cost of doing business.

  • PAN should serve as the Universal Enterprise ID and allow for seamless usage across all ministries.
  • Make necessary law/regulation changes to separate PAN for individuals and PAN for enterprises including proprietorships.
  • Link PAN of key people of the enterpise to the PAN of the enterprise itself, which in turn can be linked to their individual Aadhaar.

Creating a shared Digital Public Infrastructure

The committee says that to ease the time and cost of processing loan applications by MSMEs, a shared digital public infrastructure like India Stack should be created.

Recommendation: Enterprise ID could be used on a “mission model basis” to ensure the availability of credit to MSMEs

Video KYC

The Committee has recommended in its report using Video KYC – via actual video calls – to replace current KYC and Aadhaar KYC norms. This process is intended to replace any need for physical presence of customers.

How the Video KYC will be done: Video KYC will be carried out via Google Duo for Android users and Facetime for iPhone users, after users sign up for it on a company’s app or website, and submit their identity and address proof. During the video call, a person authorised by the company will show his/her valid ID card. The individual/customer will then show their original documents – identity and address proof – and reads out their name as it appears on the ID proof.

  • The company’s executive will then verify the documents and upload the footage for a final verification of ID and address proof by the company’s team.
  • Upon successful verification, the customer would be notified of the same.