Why can’t 9 out 10 Indians get a loan from a bank?

A story of financial exclusion

Take a walk around the streets of Bangalore and you’ll see billboards, buses, and notices plastered with ads from banks offering loans and credit cards with enticing incentives. Cashback on an iPhone 7 cries one. Earn rewards to use at hotels exclaims another. Banks are literally falling over themselves to lend to you, Indians must be awash with credit!

Except they are most certainly not.

If they were, NIRA wouldn’t need to exist. In reality, banks’ credit offers are more like the bouncer of an exclusive nightclub; if your name’s not on the list, you’re not coming in.

Meet India’s Financial Freedom Bouncer: The CIBIL SCORE

Their doorman, figuratively speaking, is your CIBIL score. This is the widely used assessment of one’s creditworthiness. Banks typically require a score of 750 out of 900. Pass this threshold (and a few other things) and their doors fly open to reveal a bounty of inducements and choice.

The trouble with exclusive clubs is just that; they are exclusive. In India only 16% of people have a CIBIL score and needless to say, many of these will be have scores below 750. With this door policy, you can quickly see how most people are excluded. But this is not a club we are talking about, these people are being excluded from access to credit which will help them better manage their consumption, invest in their own and family’s future, and cope with economic shocks.

Historically, given the lack of data such as CIBIL scores for most borrowers, banks have relied on collateral being pledged by borrowers to safeguard their loans. The trouble is that once we step away from the wealthier echelons of society, most people won’t have collateral they can readily pledge. The doors remain closed.

The Future is Here

Our central contention is that there are good borrowers across income levels and the absence of a score doesn’t imply they are bad borrowers (although those with low scores have had problems in the past).

In the digital age, we can make assessments based on a wider data set. That means we can appraise someone who doesn’t have a CIBIL score. One of the questions we are ultimately asking is whether a prospective borrower will be able to repay a loan, and that’s really just about cashflow. We fundamentally believe that there will be a paradigm shift from lending against assets to lending against future cashflows. We all have the ability to create an income stream, no matter how small.

Data and technology allow us to build a more inclusive form of finance. We are not a club. Our doors are open.