Otco International, a Bangalore-based software company focused on the microfinance sector, has launched a credit rating service to track repayment record of small borrowers who have taken loans of less than Rs5 lakh.
For the first-of-its-kind service in India, dubbed Micron, the company has signed up with 16 cooperative banks in Bangalore and neighbouring Tumkur district, giving it access to credit history records of close to 1.5 lakh cu stomers.
Analysts expect small banks funding self-help groups—providing as little as Rs2,000 as loan to the poor—would benefit from a credit scoring agency even as big banks such as Citibank, ICICI Bank and Corporation Bank have started looking at microfinance as a big business opportunity.
“Those who have been in microfinance for the last 10-15 years don’t have the tools to assess creditworthiness. Big banks with credit expertise will have an unfair advantage,” said Ramesh Ramanathan, founder of Janaagraha, a non-government organization that also disperses money through microfinance.
Ramanathan, a former senior executive with Citibank in London, said this gap would be addressed with the credit rating service for small borrowers.
Delinquency rates in the microfinance sector are low at 5%. But such lenders get hampered by the high cost of operations—nearly 12%—to service small borrowers.
Under Micron, a database of people who take consumer credit and microfinance loans will be created and their repayment pattern monitored on a regularbasis.
This can be accessed by participating banks and non-banking finance institutions, Otco executives said.
“It will take around two to three years for us to grow,” said Collin Timms, chairman of Otco International.
To register with Micron, consumers will need to pay a fee of Rs20, which will be collected by the lending bank.
Further access to the individual’s credit history will come at a small fee.