Blockchain technology to help unbanked people get credit scores
Hyderabad: As banks and financial institutions attempt to lure the middle class with quick loans and urge them to leverage their creditworthiness by citing healthy CIBIL scores, the formal credit sector rarely reaches the needy.
Most of the country’s poor have no choice but to go to pawn shops or to rely on MFIs to borrow money and end up paying exorbitant interest rates. To empower the poor, especially the unbanked and underbanked, the Telangana government has partnered with London-based start-up Cognito Technologies to launch a pilot project, in which it will leverage Blockchain technology to achieve ratings. credit from those in economically weaker sections. of the society.
Cognito Technologies, which will set up its Indian office in Hyderabad in January with 15 employees, will work with Sthree Nidhi Credit Cooperative Federation Ltd, a government agency that provides affordable credit to members of state self-help groups (SHGs). .
Murali Mohan Reddy Duvvuru, co-founder of Cognito Technologies, said that Sthree Nidhi currently has a digital system to manage its operations and that the startup will use Blockchain as the underlying technology to help them establish a credit history of each. individual.
“In Phase 1, the entire loan disbursement and repayment process will be recorded on Blockchain ledgers using smart contracts. After which, the individual credit score will be derived from the transactions recorded and stored on Blockchain and individuals will then be informed of their credit score, ”he said, adding that Cognito and Sthree Nidhi are in the process of identifying a district for the pilot.
The pilot will include around 10,000 SHG members and their transactions will begin to be recorded from April of this year. It will last around two to three months, after which stakeholders will take a call to extend it, he added.
Duvvuru explained that people with good credit scores should benefit, as they can now leverage their ratings to access cheaper loans and may even be able to contact banks.
“In the case of self-help groups, the institutional framework has been developed very carefully over two decades of hard work in Telangana. The credibility of this structure is very strong and therefore many deliveries such as loans and social assistance schemes go through this channel. Although no serious scams or fraud have taken place in Telangana, the possibility of weakening the system due to the use of some unscrupulous people is still present and may affect the credibility of the system. Therefore, Blockchain is the most suitable tool to implement here, ”said Telangana IT and Industries Senior Secretary Jayesh Ranjan.