FRICTIONLESS CREDIT
CONTEXT:
- The Reserve Bank of India (RBI) will launch a pilot project in the form of a Public Tech Platform on August 17, 2023, to ease access to credit.
What is a PUBLIC TECH PLATFORM FOR FRICTIONLESS CREDIT ?
- The Public Tech Platform for frictionless credit is an end-to-end digital platform that has been developed by the Reserve Bank Innovation Hub, a wholly-owned subsidiary of the central bank.
- It is an end-to-end digital platform that will have an open architecture, open Application Programming Interfaces (APIs), and standards to which all banks can connect in a “plug and play” model.
WHAT IS FRICTIONLESS CREDIT ?
- Frictionless credit is a borrowing approach that seeks to streamline the lending process for consumers.
- Unlike the traditional credit systems, where individuals need to go through extensive paperwork, credit checks and lengthy approval procedures, frictionless credit promises a smoother and faster experience.
- RBI’s project is designed to smoothen Kisan Credit Card lending by automating various processes within the banks and integrating their systems with service providers.
OBJECTIVE OF PUBLIC PLATFORM FOR FRICTIONLESS CREDIT :
- This move is aimed at providing digital information to lenders to facilitate credit or loans in just a few minutes.
- This initiative simplifies the integration of vital financial data through open APIs, boosting operational efficiency.
- Centralizing potential borrowers’ information on a unified platform streamlines processes.
- With active participation from banks, NBFCs, Fintech firms, and start-ups, this collaborative strategy aligns with our dedication to seamless credit and payment solutions.
- The ‘plug and play’ model encourages innovation, driving the lending sector toward greater accessibility, cost reduction, and efficiency.
BENEFITS OF FRICTIONLESS CREDIT:
- Experts, including the World Bank, point out that improved access to information provides the basis for fact based and quick credit assessments.
- It ensures that credit is extended to a larger set of borrowers with good credit history.
- The borrowers too would benefit by the resulting lower cost of accessing capital, which would translate into productive investment spending.
- Availing formal credit may entail multiple visits to the bank alongside cumbersome documentation.
- This translates to higher operational costs for lenders which may also get distributed to borrowers.
- As per media reports, an RBI survey indicated that processing of farm loans used to take two to four weeks and cost about 6% of loan’s total value.
- All in all, the lending platform would bring about “reduction of costs, quicker disbursement and scalability.
SYLLABUS: PRELIMS, INDIAN ECONOMY
