Blockchain technology to help stragglers get credit scores

Hyderabad: While banks and financial institutions try to lure the middle class with fast loans and push them to exploit their creditworthiness by citing sound CIBIL scores, the formal lending sector rarely reaches the needy.

Most of the country's poor have no choice but to turn to moneylenders or use MFIs to borrow money and end up paying exorbitant interest rates. To give power to the poor, especially to the poor and underestimated populations, the Telangana government has joined the London startup Cognito Technologies to launch a pilot project, in which it will exploit the Blockchain technology to obtain credit scores of those of the sections economically weaker than society.

Cognito Technologies, which will open its India office in Hyderabad with 15 employees in January, will work with Sthree Nidhi Credit Cooperative Federation Ltd, a government agency that promotes affordable loans to members of the self-help group (SHG) in the state.

Murals Mohan Reddy Duvvuru, co-founder of Cognito Technologies, said that Sthree Nidhi currently has a digital system to perform its operations and that the startup will use Blockchain as the core technology to help them establish a credit history of each individual.

"In phase 1, the entire loan disbursement and reimbursement process will be recorded on Blockchain registries using smart contracts.After this, the individual credit rating will be derived from the transactions recorded and archived on Blockchain and the persons will be made aware of their credit score, "he said, adding that Cognito and Sthree Nidhi are identifying a district for the pilot.

The pilot project will include about 10,000 SHG members and their transactions will start to be registered from April of this year. It will work for about two or three months, after which the interested parties will take a call to resize it, he added.

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

"In the case of the 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 therefore many deliveries such as loans and welfare schemes take place through this channel. a fraud or a series fraud did not occur in Telangana, the possibility of weakening the system due to some unscrupulous people who take advantage of it is always present and can affect the credibility of the system.Therefore, Blockchain is a more appropriate tool to implement here, "said Telangana IT chief secretary and industries Jayesh Ranjan.

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