Context: 

The Reserve Bank of India has initiated a Pilot Project for ‘Public Tech Platform for Frictionless Credit’.

About: 

• Public Tech Platform for Frictionless Credit was announced as part of the Statement on Developmental and Regulatory Policies by the Reserve Bank of India.
• Developed by: The Reserve Bank Innovation Hub (RBIH).
• Aim: To establish a single digital clearing house for credit-related information.
• Features: Open architecture, open Application Programming Interfaces (APIs) and standards.

Why is there a need for such an institution?

• Lack of Formal Credit Access: More than seven decades since independence, there is still a lack of formal credit penetration.
  • Particularly among small and marginal farmers in the rural hinterland.
• Regional Disparities: 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’.
  • Only a fifth of the more than 12.5 crore small and marginal farmers have access to institutional credit. 
• Informal Borrowing: A large majority of rural borrowers avail loans from informal sources at a very high rate of interest. 

Significance:

• A Pilot Project: As part of an effort to validate the technology and its utility.
  • Example: It 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 to MSMEs, and personal and home loans through participating banks. 
• Large Credit Disbursal: It would help to accelerate the loan approval and disbursal process significantly. 
• Digital Data Flow: It would facilitate the seamless flow of required digital information. 
  • Lenders would be able to access data on the borrowers and credit-related services from agencies. 
    • Including Agencies: 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.

Conclusion: 

The digital platform, if successfully implemented, will make the lending process quick, smooth and inclusive, help in reducing costs, and redress the facing challenges to the delivery of formal.

News Source: The Hindu