Context: The Reserve Bank of India announced the launch of the Public Tech Platform for Frictionless Credit (PTPFC) pilot project.
About Public Tech Platform for Frictionless Credit (PTPFC):
- It is an end-to-end digital platform that has been developed by the Reserve Bank Innovation Hub, a wholly-owned subsidiary of the central bank.
- Aim: To connect borrowers and lenders, which will make credit more accessible to millions of individuals looking for small loans.
- Plug and Play Model: It will have an open architecture, open Application Programming Interfaces (API) and standards, to which all financial sector players would be able to connect seamlessly in a ‘plug and play’ model.
- Significance: It allows central and state government entities, banks, credit information companies, and digital identity authorities to share information.
- This allows the various stakeholders in the lending process to collate the data for each borrower faster leading to speedier processing of loan requests.
- It will help in reducing costs while increasing transparency, efficiency, and scalability.
“Plug and Play”
- It is a term commonly used in technology and design to describe a system or device that is designed to work immediately after being connected or “plugged in” without requiring any complex installation or configuration process.
Frictionless Credit:
- Frictionless credit is a borrowing approach that seeks to streamline the lending process for consumers.
- Unlike the traditional credit systems, where individuals need to go through extensive paperwork, credit checks and lengthy approval procedures, frictionless credit promises a smoother and faster experience.
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Benefits:
- Enhancing Credit Management: It would provide a basis for improved credit risk and overall credit portfolio management.
- Diversifying Loan Offerings: It will enable the disbursal of non-collateral based loans for Micro, Small and Medium Enterprises (MSMEs), Kisan Credit Card loans up to Rs 1.6 lakh, dairy loans, personal loans, and home loans.
- Integration of Financial Data: It simplifies the integration of vital financial data through open APIs, boosting operational efficiency.
- Lower Cost of Accessing Capital: The borrowers would benefit by the resulting lower cost of accessing capital, which would translate into productive investment spending (essentially, money spent for purchasing capital goods used in the production of capital, final goods and services).
- Comprehensive Approach to Informed Loan Assessment: It is expected to link with services like Aadhar e-KYC, Aadhar e-signing, land records from onboarded state governments (Madhya Pradesh, Tamil Nadu, Karnataka, Uttar Pradesh and Maharashtra).
- Thus, it would cover all aspects of farming operations (essential to understand the exposure and default risk for loans of the nature) alongside those necessary for ascertaining financial profiles.
News Source: The Hindu
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August 21, 2023