Clipped from: https://www.financialexpress.com/opinion/indiasnbspnextnbspcreditnbspreform/4106555/
Financial asset tokenisation offers a way to convert data-driven inclusion into credit depth.
According to World Bank data, India’s domestic credit by banks to the private sector has remained at around 50% of GDP. (Representational image: Canva)
By Arvind Gupta & Saravanan Nattanmai
India’s Digital Public Infrastructure (DPI) has already delivered one of the most consequential financial inclusion stories of the past decade. Aadhaar-enabled know-your-customer (KYC), instant retail payments through United Payments Interface (UPI), and consent-based data sharing via the Account Aggregator framework have brought hundreds of millions into the formal financial system, reduced onboarding and transaction costs, and made financial information portable across institutions. This data layer marked the first step in financing at a population scale. It enabled access, bank accounts, and digital visibility. But inclusion through data and payments, while necessary, is not sufficient to unlock credit at depth. The next constraint lies in how financial assets and cash flows are represented, enforced, and mobilised. Tokenisation, or the digital representation of ownership rights and financial claims on a programmable ledger, addresses this gap. It is sequential to DPI, not parallel to it. Where DPI digitises information, tokenisation digitises rights, opening the door to programmable, fractional, and reusable financial value.
India’s credit gap
According to World Bank data, India’s domestic credit by banks to the private sector has remained at around 50% of GDP, far below the levels seen in economies with deeper credit markets, underscoring a persistent structural gap between economic activity and credit availability across both retail and business segments. Only about 19% of micro, small, and medium (MSME) credit demand in FY21 is currently met through formal channels, leaving an estimated `80 lakh crore credit gap, despite priority sector lending and credit guarantee schemes. What these figures underline is that India’s credit challenge is no longer about access to bank accounts or payment rails. Banks are liquid, and fintech rails are active, yet credit creation remains bottlenecked by slow settlement cycles, fragmented asset registries, and limited visibility into ownership, encumbrance, and cash-flow priority. Financial assets exist digitally, but they are still processed as static records rather than executable claims.
Financial assets tokenisation directly targets this layer of friction. By enabling digital representations of bonds, fund units, receivables, and structured claims—where ownership, transfer conditions, and servicing logic are embedded in the asset itself—tokenisation converts financial instruments from passive records into programmable components of the credit system. Settlement, collateralisation, and servicing cease to be sequential back-office processes and instead become attributes of the asset representation, executed within regulated frameworks.
The most credible pathway for India lies in starting with business-to-business applications, where financial assets already anchor credit creation. MSMEs are a natural early use case not merely because they are underserved, but because they are information-rich and asset-light. Receivables, invoices, supply chain obligations, and pooled cash-flow claims dominate their financial lives, yet these assets are discounted heavily due to verification and enforcement frictions. Tokenising such financial claims—anchored in verified transaction data and held within regulated custody arrangements—allows lenders to rely on live ownership and priority information rather than static documents. In this sense, MSME credit can be considered as the proving ground for financial asset tokenisation.
International regulatory momentum supports this sequencing. Tokenisation has advanced first in wholesale and institutional markets. In the US, regulators have focused on tokenised repo and collateral settlement to improve post-trade efficiency. Singapore has adopted a sandbox-led approach through Project Guardian, while Switzerland has provided legal recognition to blockchain-based securities via the SIX Digital Exchange. Across the European Union, experimentation has prioritised settlement finality and legal certainty. Markets such as Germany, the United Kingdom, and Switzerland have also differentiated tax treatment for digital asset holdings, improving revenue and market efficiency.
India is unusually well positioned to follow this trajectory because its data layer already works. The Account Aggregator framework, overseen by the Reserve Bank of India, enables consent-based sharing of bank, tax, and cash-flow data across regulated entities. This has improved underwriting, but data alone does not create collateral. Tokenisation supplies the missing step by converting verified financial information into programmable asset representations that can be pledged, settled, and monitored continuously. When combined with interoperable transactions and Open Network for Digital Commerce (ONDC) based enterprise data, this enables a shift from episodic credit assessment to ongoing, asset-based risk management.
Regulators gears up for tokenised assets
The legal and regulatory signals are aligning with this transition. The draft Securities Markets Code adopts a technology-neutral posture, signalling comfort with digital asset representations while leaving design choices to regulators and sandboxes. Digital guardrails will be essential, including licensed custodians, KYC due diligence, and protocols for asset recovery and insolvency. A joint sandbox between Securities and Exchange Board of India (Sebi) and International Financial Services Centres Authority (IFSCA) can test tokenised bonds, money-market funds, and alternate investment fund (AIF) units. A consortium model under the Responsible Digital Infrastructure scheme can support shared market infrastructure. Differential taxation between asset-backed tokens and speculative assets can help mobilise capital, including from offshore to onshore.
Over time, such steps provide an impetus from B2B to business-to-customer (B2C). As tokenised financial assets prove their reliability in institutional credit, collateral management, and settlement, similar architectures can support retail participation—through fractional ownership, programmable payouts, and more transparent risk disclosure—within strong consumer protection frameworks.
India’s DPI succeeded because it focused on systems, interoperability, and institutional alignment rather than speed alone. Financial asset tokenisation, pursued as the next layer of that architecture, offers a way to convert data-driven inclusion into credit depth and programmable finance. The opportunity is not only better for MSME lending or faster settlements, but for afinancial system where value itself is digitally represented in a form that can move, settle, and be financed with far less friction—unlocking the next phase of India’s credit and capital markets.
The authors are, respectively, an adjunct professor of data and digital economy, and head, Digital India Foundation & partner, Premji Invest
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