World Bank data suggests that only 22% of Indian adults are covered by credit bureaus, implying that the rest of them do not have a credit history, which in turn leads to limited access to loans. Giving the lender confidence that the borrower has sufficient education, experience and industry knowledge to handle the business is crucial to ensure that the borrower is eligible for a loan.
Maintaining a credit score is key since a credit score is a ‘report card’ or a track record of sorts, and it definitely pays, or rather saves to have good credit. Maintaining an excellent credit score essentially helps you save money. A good credit score brings the cost of your loans down and makes you a preferred customer to banks and other lenders.
India’s credit scenario
India’s fin-tech ecosystem has seen a tremendous improvement over the recent years with digitization taking over the country. There are four main RBI-licensed credit bureaus in India that offer these credit scores, namely, TransUnion, CIBIL, Equifax and CRIF Highmark. However, with the drastically low percentage of Indian adults who have a credit history, and with most of them being unaware of the importance of maintaining a good credit score and proper records, it becomes increasingly difficult to keep a track of the creditworthiness of an individual. In addition to this, a borrower’s reputation plays a significant role in receiving a loan from a bank. Keeping track of an individual’s credit score involves aspects like aggregating information from sources like the credit bureau, the application form and social networks to assess the creditworthiness. This, being a time consuming and tedious process, paved the way for ‘Trust Score’, an enhanced concept which simplifies the process.
Measuring ‘Trust Score’
An increasing number of NBFCs, banks and other lenders are leveraging key data insights to for decision making. ‘Trust Score’ is derived from a host of data points about a business which are analysed and extracted from various formal alternative sources, thus helping lenders determine the borrowers’ trustworthiness and also assists in real-time monitoring. While assessing the ‘Trust Score’, it is imperative that the lender/organization keeps in mind aspects such as verifiable data, relevant insights and good behaviour, which make the assessment simpler and more accurate.
Increasing digitization paving the way for actionable credit intelligence
The penetration of technology in the Indian fin-tech sector has ensured that there is significantly lesser fraudulent activities and simpler, user-friendly methods and has created an awareness amongst the people. The increasing digitization of data has largely reduced the failure of conventional credit rating methods, giving way for actionable credit intelligence. Actionable intelligence is verifiable data of sorts, when information provided can be tracked. Technologies such as AI and ML now have a chance to provide a fairly unbiased and accurate insights into the reputation of a business, thus making ‘trust score’ a reliable way to determine whether or not the entity is a risky customer to offer loan to.
Improving trust to improve trading and lending activities
A low trust score would mean lower number of loan applications being processed which would in turn lead to a decrease in lending and trading activities. Working on improving your ‘trust score’ would prove to be mutually beneficial for you as well as the lender, thus raising the trading and lending activities in the country, ultimately contributing to the country’s economy. Companies in the tech-fin sector, which provide data insights-as-a-service, are evolving rapidly, helping banks, NBFCs and other lenders determine the trust score of a business and making it easier to segregate the ‘low risk’ customers from the ‘high risk’ ones. This would ensure stability in the trading and lending activities in the country.The author is the Founder & CEO of Crediwatch.