Contributed by: Meera Siva
Ones credit score is his/her passport to get a loan but the largest credit database in India has only 300 million people. So what about the financial inclusion and credit access to the rest? Flip the question around, this can offer a huge potential to lending institutions if they can figure out how to rate the credit worthiness of those without a credit score.
It is these problems and possibilities that Ranjit Punja, co-founder of CreditMantri, a start-up in the digital credit marketplace elaborated on. In his talk on October 29, 2015 to the Chennai chapter of IAIP, he touched on the evolution in consumer credit segment in India and offered a sneak peek on what advances lay ahead in this exciting space. Ranjit was born and brought up in Chennai and has an MBA from the University of Wisconsin. He is an avid runner and has completed four New York City Marathons.
Ranjit, a veteran of 23 years at Citibank has a wide experience in credit and collections, having worked at multiple locations across the globe. In his last assignment with Citibank he managed consumer bank collections across 53 countries outside the USA. Creditmantri was co-founded along with two other ex-Citibank executives and has raised Series A funding earlier this year.
In his candid talk, Ranjit mentioned, lenders need to answer four questions when assessing credit worthiness. One, is the borrower real (can be answered through KYC documents). Two, is the person reachable (contact information helps). Three, ability to repay (A lot of information – ranging from salary, nature of employment, other assets and liabilities – can be evaluated for this assessment).
Last – and the trickiest of the questions – is the willing ness of the borrower to repay. Credit score which is on past repayment record, is viewed as an indictor in determining this. But in the absence of credit score, lenders may have to do a lot of ground work or just decide not to take any risks.
However, with a lot of information available digitally, we can triangulate on credit worthiness based on data from multiple sources. GPS in phones can be used to establish address. A LinkedIn account with say 50 connections that includes people from the stated place of work provides confidence on employment data even without a payslip. Bank transaction details based on SMS logs, purchase and returns records from e-commerce sites and wallets also provide a wealth of data to analyse and draw intelligent credit conclusions on.
These could help extend credit access to those without prior credit history, but may be credit worthy. Also, many NBFCs have a lot of data on credit history on their clients. These can also be tapped by intermediaries to lower the cost of borrowing. Online finger printing and checking with databases such as Aadhar can speed up loan processing.
The work done by entities such as CreditMantri play an important role in evaluating credit files with ‘thin’ credit history. Through ingeniously tapping multiple data points, a credit-score like estimate can be arrived at that can aid decision-making. Making credit assessment possible for individuals – who were previously thought to be in the credit blind-spot area – helps promote financial inclusion.