The Reserve Bank of India (RBI) has launched a pilot program to test the viability of a ‘Public Tech Platform for Frictionless Credit’. This initiative aims to enhance credit delivery efficiency by expediting the credit appraisal process and subsequently improving financial inclusion in India. The strategy is a part of RBI’s developmental and regulatory policies, unveiled after the August 2023 Monetary Policy Committee (MPC) meeting.
Frictionless credit is an innovative borrowing method designed to simplify the lending process. It features less paperwork, less stringent credit checks, and faster approval processes compared to traditional lending systems.
The Public Tech Platform for Frictionless Credit
The Public Tech Platform for Frictionless Credit is a digital platform developed by the Reserve Bank Innovation Hub (RBIH). Boasting of an open architecture and open Application Programming Interfaces (APIs), this platform enables all banks to connect seamlessly.
Credit delivery via digital means relies on credit appraisal, which measures the borrower’s capacity to repay the debt and comply with the credit agreement. This process depends on three primary factors – adverse selection, exposure risk measurement, and default risk assessment.
Data Integration
The platform is backed by centralized and state governments, Account Aggregators (AA), banks, credit information corporations, and digital identity authorities’ data. The integration of these various sources facilitates the rule-based lending process.
Platform Coverage
The platform’s reach extends beyond Kisan Credit Card affiliated loans. Also covered are dairy loans, MSME loans without collateral, personal loans, and home loans. In addition, it connects with services like Aadhar e-KYC, land record data, satellite data, PAN validation, and AAs, among other services.
Benefits and Impact
The consolidation of data on the platform paves the way for efficient credit risk assessment and portfolio management. Swift access to precise information supports informed credit assessments, reducing capital access costs and improving the borrower’s borrowing experience.
Furthermore, the platform mitigates operational challenges like documentation requirements and multiple visits, generating savings for borrowers and lenders alike. The processing time for loans is accelerated, enhancing scalability and efficiency in the credit ecosystem.
Financial Inclusion and Access to Credit: Economic Growth Implications
Financial inclusion ensures that all society segments, including marginalized groups and low-income individuals, can avail of vital financial services. This access empowers them to save, invest, and secure credit, fostering equitable economic growth by reducing income disparities.
Credit availability spurs entrepreneurship, leading to job creation, innovation, economic diversification, and consequently, higher GDP growth. The opportunity to invest in education, healthcare, and other income-generating activities also helps alleviate poverty and improve human development outcomes.
The availability of adequate credit for large-scale infrastructure projects is also essential for continued economic growth. It boosts productivity, rural development, and overall economic growth by enabling farmers to modernize agricultural practices in agrarian economies.
Lastly, a robust credit market facilitating individual and business funding diversification contributes to financial stability by reducing reliance on volatile and risky informal lending channels.
