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Blockchain tech to help the unbanked get credit scores

Hyderabad: While banks and financial institutions try to lure the middle class with quick loans and urge them to leverage their credit worthiness citing healthy CIBIL scores, the formal lending sector seldom reaches out to the needy.

Most of the country’s poor have no choice but to go to moneylenders or fall back on MFIs to borrow money and end up paying exorbitant interest rates. To empower the poor, especially the unbanked and underbanked populations, the Telangana government has joined hands with London-based startup Cognito Technologies to kick off a pilot project, wherein it will leverage Blockchain technology to come up with credit scores of those from economically weaker sections of society.

Cognito Technologies, that will be setting up its India office in Hyderabad in January with 15 employees, will be collaborating with Sthree Nidhi Credit Cooperative Federation Ltd, a government body that advances affordable credit to the self-help group (SHG) members in the state.

Murali Mohan Reddy Duvvuru, co-founder, Cognito Technologies, said Sthree Nidhi currently has a digital system in place to run its operations and the startup will be using Blockchain as an underlying technology to help them establish a credit history of every individual.

“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,” he said, adding that Cognito and Sthree Nidhi are in the process of identifying a district for the pilot.

The pilot will include around 10,000 SHG members and their transactions will start getting recorded from April this year. It will run for around two to three months, following which the stakeholders will take a call on scaling it up, he added.

Duvvuru explained that individuals with a good credit score are expected to benefit as now they can leverage their scores to get access to cheaper loans and may even be able to approach banks.

“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 a the most appropriate tool to be implemented here,” Telangana IT and industries principal secretary Jayesh Ranjan said.


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