The Hindu Editorial Vocabulary– August 23, 2023; Day 456

Easing credit flow: On the Reserve Bank of India’s Public Tech Platform for Frictionless Credit

The Reserve Bank of India’s platform for loan approvals will help small borrowers 

The Reserve Bank of India’s plan to establish a ‘Public Tech Platform for Frictionless Credit’ is a well-intentioned move that is aimed at easing the flow of credit, especially to small and marginal borrowers. Announced as part of the Statement on Developmental and Regulatory Policies that accompanied the latest monetary policy, earlier this month, the platform is intended to serve as a one-stop digital clearing house for credit-related information, which should help accelerate the loan approval and disbursal (the act or process of paying something) process significantly. Developed by the Reserve Bank Innovation Hub, the platform will feature open architecture, open Application Programming Interfaces (APIs) and standards that would facilitate the seamless flow of required digital information from varied entities including State and central governments, credit information companies and digital identity authorities to lenders. As part of an effort to validate the technology and its utility, the RBI said the platform would be introduced in a pilot project that would focus on products such as Kisan Credit Card loans of up to ₹1.6 lakh per borrower, loans to dairy farmers, credit-sans-collateral (sans means without) to MSMEs, and personal and home loans through participating banks. Lenders would be able to access data on the borrowers and credit-related services from agencies including Aadhaar e-KYC, land records in States where local governments have digitised (Put into digital form, as for use in a computer) such data (Tamil Nadu, Karnataka, Uttar Pradesh and Maharashtra included) and even milk pouring data from select dairy cooperatives.

The need for such a centralised public platform can hardly be over-emphasised when one considers the lack of formal credit penetration (the obtaining of a share of a market for some commodity or service), particularly among small and marginal farmers in the rural hinterland (A remote and undeveloped area). More than seven decades since Independence, the question of what needs to be done to make institutional rural credit more inclusive continues to remain a vexing (Extremely annoying or displeasing) challenge to government planners and economic researchers alike. In 2021, a National Bank for Agriculture and Rural Development economist observed that ‘even among well-developed regions, small and marginal farmers were disadvantaged in terms of credit access’, with barely (By a little) a fifth of the more than 12.5 crore small and marginal farmers having access to institutional credit. As a result, a large majority of rural borrowers end up availing (Take or use) loans from informal sources including moneylenders, and often at usurious (Greatly exceeding bounds of reason or moderation) rates of interest. The digital platform, if successfully implemented, can help redress (to correct something that is unfair or wrong) precisely this challenge to the delivery of formal credit by helping leverage the contemporary (Belonging to the present time) advances in digitisation of information and ensuring that small-ticket loans are made available in a timely and cost-effective manner to those most in need of financing support.

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