Govt to roll out credit rating for rural borrowers in six months

New Delhi: The Union government plans to launch a Grameen Credit Score system within six months, mirroring the MSME credit framework, to boost formal lending to farmers, self-employed individuals, and self-help groups (SHGs), two people familiar with the matter toldMint.

The government is working with public-sector banks and the Indian Banks’ Association (IBA) to develop the framework. It will assess rural borrowers' creditworthiness based on digital transaction data, government subsidy receipts, and Unified Payments Interface (UPI) activity, the people mentioned above said on condition of anonymity.

Like the Micro, Small and Medium Enterprises MSME model, the rural credit score will incorporate alternative financial indicators, such as utility bill payments, property ownership, and vehicle usage, the first person mentioned above said.

“The two models—the MSME credit assessment and the Grameen Credit Score—are being developed in parallel," the person said. “The MSME framework will be implemented first, while the rural credit score should be ready for deployment in the latter half of 2025."

The Budget 2024-25, presented by finance minister Nirmala Sitharaman in July last year, proposed that banks develop a new credit assessment model based on the scoring of digital footprints of MSMEs in the economy. This was intended to improve upon the traditional assessment of credit eligibility which primarily relies on asset and turnover criteria. 

Banks are expected to come out with a new framework and credit assessment model for MSME early next fiscal year.

Inclusive credit assessment system

Finance minister Nirmala Sitharaman has underscored the need for an inclusive credit assessment system in her FY2025-26 budget speech, particularly to enhance financial access for women in rural India.

The rural credit score will also enable banks to develop tailored loan products, making credit more accessible to entrepreneurs and small businesses, said the second person mentioned above, who didn't want to be named.

"A strong credit score could help secure larger loans at competitive rates, supporting business expansion in rural India. Farmers with a solid digital footprint, timely utility bill payments, and consistent spending patterns—reflected in UPI transactions—would qualify for better banking credit, fostering entrepreneurship and financial inclusion," the person added.

A data-driven rating system could help banks tailor loan products for rural borrowers.

A finance ministry spokesperson didn't respond to emailed queries.

Experts say the initiative could significantly boost lending to self-help groups, which historically have strong repayment track records.

“Grameen credit score will be of great benefit to quantify the intent to pay and increase the bank’s abilities to assess borrowers more seamlessly. Any score is as good as the data used to create it, and the quality of the individual borrower-level data, especially for SHGs, etc., continues to be a challenge," said Nimilita Chatterjee, partner at EY India’s Financial Services Risk Consulting practice.

Also Read: Credit score vs credit report: What’s the difference and why they matter

 

Grameen credit score

"It is imperative that the details of individual borrowers who are part of the SHGs are captured accurately both retrospectively and prospectively. This is very important for the stability of the score and accuracy," Chatterjee added.

Grameen's credit score will enable banks to effectively underwrite borrowers, which will increase credit, including rural credit, without compromising on credit quality, said Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat.

"We expect the credit score to significantly push up rural credit disbursements and bring about true financial inclusion," he added.

Grameen credit score is also expected to reduce rural borrowers’ dependence on informal lenders, who often charge exorbitant interest rates. With the score, banks could assess creditworthiness more accurately and be more willing to lend, breaking this cycle of financial dependence on unregulated sources.