Most banks in India rely on CIBIL score (which determines the creditworthiness of the borrower) to sanction loans, but for the unbanked, its a difficult task for banks to hand out loans. And, the borrowers had to rely on MFIs and money lenders to borrow money and end up paying exorbitant interest rates.
To deal with the situation and especially to empower the unbanked and poor sect of the society, Telangana Govt. along with London-based startup Cognito Technologies will start a pilot project, in which it will leverage the blockchain technology to come up with credit scores of those from economically weaker sections of the society.
Cognito Technologies will set up an office in Hyderabad and will collaborate with Sthree Nidhi Credit Cooperative Federation Ltd., a government body that advanced affordable loans to self-help groups.
According to Murali Mohan Reddy Duvvuru, the co-founder of Cognito Technologies, using the Sthree Nidhi’s digital system, the firm will be using blockchain technology to establish a credit history for every individual.
Both Sthree Nidhi and Cognito Technology is in the process to identify the first district in which the pilot will be launched. The pilot will include 10,000 SHGs, and the process of recording will start from April this year and will run for two-three months, following which stakeholders will take a call on its expansion.
“In phase-1, the entire process of loan disbursement and repayments will be recorded on Blockchain ledgers using smart contracts. Following which, individual credit rating will be derived from the transactions recorded and stored on Blockchain and the individuals will then be made aware of their credit score,”
“In the case of SHGs, the institutional framework has been developed very carefully through two decades of hard work in Telangana. The credibility of this structure is very strong and hence lots of deliveries such as loans and welfare schemes happen through this channel. While a serious scam or fraud has not taken place in Telangana, the possibility of system weakening due to some unscrupulous people taking advantage is always there and can affect the credibility of the system. Therefore, Blockchain is the most appropriate tool to be implemented here,”