Page 30 - Banking Finance September 2022

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history of financial statements and so on, getting loans from prospective borrower. This will allow lenders to assess the
banks is a routine affair. But for smaller entrepreneurs, lack borrower's credit risk keeping in view the viability of cash
of transparency and credit history, getting loans from the flows, ask the relevant questions (e.g., are there other
formal system is not an easy task. Banks often end up underlying issues that are affecting ability to pay the loan
charging such customers a much higher rate of interest on in spite of healthy cash flows from the micro enterprise?),
loans than they would charge others, simply for the higher and price the loan terms without compromising on due
risk they carry. All this boils down to opaqueness of diligence.
information. If banks could clearly access data that showed
what assets a new borrower has, what their past track Based on these, nearly-automated loan sanction and
record of payment has been and how indebted they already disbursement mechanisms can be devised, as are also being
are, pushing credit to micro and small enterprises would not attempted by fin-tech companies. In fact, credit products
be as hard. This is where a Public Credit Registry can play a could get transformed with the possibility of sanctioning
pivotal role. small ticket loans with short maturity and zero or low
collateral requirement. Borrowers and entrepreneurs can
To build credit models for individuals and small credits, the build their reputation and credit quality by repaying well
financier and its modelers are ideally required to know not such initial information-building loans. Gradually, they can
just outstanding credit for the micro borrowers, but possibly borrow more and at longer maturities, potentially making
also their entire repayment history and their cash flow capital investments to enhance productivity. Once their size
fluctuations, so as to tailor the terms of credit suitably. In increases and they register with the GSTN, tax invoices can
the absence of such information, many borrowers may act as the cash-flow verification with PCR. Robust credit
simply get 'rationed' out of the market due to severe history built over a period can work as sturdy collateral,
information asymmetry faced by financiers. building the trust of the lenders. Thus it can rapidly expand
access to credit for those micro and small enterprises. Thus
With PCR tracking every credit transaction from its
Public Credit Registry can help in Micro Credit and this is
origination to closure (initial terms, repayment, default,
where a Public Credit Registry can be a game changer.
restructuring, etc.), and being linked to various digital
systems in place (as shown in the chart above), it would be
References:
possible to identify and get to know well businesses, even
https://rbi.org.in
micro enterprises and micro entrepreneurs. In other words,
https://www.cnbctv18.com
the PCR could supply the missing link, which is the complete
'360-degree view' information of the borrower or https://bfsi.economictimes.indiatimes.com

CAG unearths Rs. 183-crore scam in Haryana

The Comptroller and Auditor General (CAG) of India has exposed a scam of the Haryana government in which the top
brass of Faridabad Municipal Corporation cleared Rs. 183 crore worth of payments in multiple instalments of under
Rs. 5 lakh to a single contractor for mostly cooked up city development works for five years.

The Faridabad municipality is understood to have adopted this innovative way of syphoning off public money to avoid
seeking clearance from higher officials if the payment exceeded Rs. 5 lakh.

The initial finding of the CAG's Accountant General office of Haryana, revealed that contractor Satbir Singh, a resi-
dent of Parvatiaya Colony of Faridabad, was allegedly arbitrarily awarded contracts for five years, beginning in 2015,
ignoring e-tendering government rules and urban local bodies department guidelines. He subsequently received pay-
ments from Faridabad Municipal Corporation through 588 vouchers, running into Rs. 183.83 crore, calculated the
CAG auditors. The findings will be included in the CAG's compliance audit report on urban local bodies department of
Haryana for the year March 31, 2022, and made public subsequently.

30 | 2022 | SEPTEMBER | BANKING FINANCE