Easing credit flow: On the Reserve Bank of India’s Public Tech Platform for Frictionless Credit

Source: The post is based on articles “Easing credit flow: On the Reserve Bank of India’s Public Tech Platform for Frictionless Credit” published in The Hindu on 23^rd August 2023.

Syllabus: GS 3 – Indian Economy – Mobilization of Resources, Growth & Development

Relevance: About Public Tech Platform for Frictionless Credit

News: Recently, the RBI has announced to establish a ‘Public Tech Platform for Frictionless Credit’.

What is “Public Tech Platform for Frictionless Credit”?

It aims to make borrowing easier for small and marginal borrowers. It will function as a digital hub for credit information, streamlining the loan approval process.

The platform will include an open architecture, open Application Programming Interfaces (APIs), and open standards that enable the sharing of digital data with lenders by a variety of organisations, including governmental agencies, credit information providers, and digital identification authorities.

The platform would be introduced in a pilot project on products like Kisan Credit Card loans, loans for dairy farmers, credit without collateral for MSMEs, and personal and home loans through participating banks.

Lenders have the ability to get borrower information from places like Aadhaar e-KYC, digital land records, and even data about milk supply from specific dairy cooperatives.

Must Read: What is RBI’s new pilot for frictionless credit?

Why was the platform needed?

A centralized public platform is crucial because it’s hard for small farmers in rural areas to get formal loans. Despite over seven decades of independence, the issue of enhancing inclusive rural credit remains a significant challenge.

Due to the unavailability of the formal credit, many rural borrowers resort to informal sources like moneylenders, often facing high interest rates.

Hence, the proposed digital platform could address this challenge by utilizing digital advancements to ensure timely and cost-effective availability of small loans to those who need financing the most.