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What's the article about?
- It talks about the Reserve Bank of India’s new initiative – Public Tech Platform for Frictionless Credit.
Relevance:
- GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment; Inclusive Growth and issues arising from it;
- Prelims
Context:
- The Reserve Bank of India (RBI) has announced a new initiative to establish a “Public Tech Platform for Frictionless Credit”.
- The platform is intended to serve as a digital clearing house for credit-related information, with the goal of easing the flow of credit, particularly to small and marginal borrowers.
- The RBI Innovation Hub will develop the platform, which will feature open architecture, open APIs, and standards to facilitate the seamless flow of digital information from various entities, including state and central governments, credit information companies, and digital identity authorities to lenders.
Analysis:
- Pilot Project:
- As part of an effort to validate the technology and its utility, the RBI will introduce the platform in a pilot project.
- The pilot will focus on products such as Kisan Credit Card loans of up to ₹1.6 lakh per borrower, loans to dairy farmers, credit-sans-collateral to MSMEs, and personal and home loans through participating banks.
- Lenders will be able to access data on borrowers and credit-related services from agencies, including Aadhaar e-KYC, land records in states where local governments have digitized such data (Tamil Nadu, Karnataka, Uttar Pradesh, and Maharashtra included), and even milk pouring data from select dairy cooperatives.
- The Need for the Platform:
- The need for such a centralized public platform is significant, given the lack of formal credit penetration, particularly among small and marginal farmers in the rural hinterland.
- Even among well-developed regions, small and marginal farmers are disadvantaged in terms of credit access, with barely 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 loans from informal sources, including moneylenders, often at usurious rates of interest.
- The digital platform, if successfully implemented, can help redress precisely this challenge to the delivery of formal credit by leveraging contemporary advances in digitization 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.
Way Forward:
- The RBI's Public Tech Platform for Frictionless Credit is a well-intentioned move aimed at easing the flow of credit, particularly to small and marginal borrowers.
- The platform's open architecture, open APIs, and standards should help accelerate the loan approval and disbursal process significantly.
- The pilot project will focus on several products, including Kisan Credit Card loans, loans to dairy farmers, credit-sans-collateral to MSMEs, and personal and home loans through participating banks.
- The platform has the potential to address the challenge of delivering formal credit to small and marginal farmers in the rural hinterland, who are often disadvantaged in terms of credit access.
