Borrowing and lending are possibly among the oldest professions on earth. The legal framework for credit dates back to 1800 BC when Hammurabi, the King of the first dynasty of Babylon, authored the earliest known formal laws. In India too, Kautilya’s Arthashastra (400 BC) gives detailed references regarding the rates of interest that maybe charged by money lenders to different types of borrowers.
Not withstanding this long tradition, the awareness of credit and credit management tools is very low among the general population in India.
India is a young country with about 65% of the population under the age of 35 years. With a median age of 25 years, more and more people continue to get inducted into the workforce every year. This is expected to result in an astronomical increase in the demand for all kinds of products and services, in turn fuelling the demand for formal sources of credit. Retail credit penetration in India is far lower than even smaller countries such as Thailand and Vietnam. This combined with India’s young population is indicative of the growth potential for credit products in the near future. When we wish to buy a product where the costs are high; like a car, we have only two options. We can either take a loan or we can save money to buy it outright. There is only so much that can be achieved from the limited capital available with any individual. It is, therefore, important to be credit healthy in order to have access to loans and other credit facilities. The importance of retail credit in our lives underlines the need for everyone to be credit healthy. A good understanding of credit and its active management could prove to be the key to a world of conveniences and opportunities.
However, a lack of understanding on how to manage credit can lead to a situation that potentially could be financially devastating. It is equally true that the awareness of credit and credit management tools is very low among the general population in India.
As per a Standard & Poor report of 2015, India ranks rather poorly on financial and credit literacy.
– 76%* of Indian adults do not understand basic and key financial concepts
– 39% of the adults who had borrowed formal loans are financially literate
– Nearly four in 10 Indian adults** (39 per cent) have experienced some sort of identity theft in their lifetime
– Very few people are aware of the importance of credit scores and credit reports in their lives
This has severe consequences for India and results in:
– Higher amounts borrowed and higher interest costs on credit
– Higher default rates on loans
– Mental and financial trauma due to identity theft
Traditional financial education is costly and difficult to impart. The complexities of imparting such knowledge in a large and diverse country like India make the problem even harder to solve. What India needs, therefore, is a credit helpline. How do I make a household budget and stick to it? What’s the best home loan in the market? How do I decide which bank to choose for a credit card? What’s the fastest way to get a personal loan? What do I do when I feel I am a victim identity theft? Can my low credit score be improved? The obvious approach is to ‘Google it’ but Google is only a pointer to information sources and cannot guarantee accuracy. Trusted financial advisors are tough to find especially at a scale that India needs. Very often, such advisors are biased and are out to sell products where they maximise their fees with little regard to what the customer really wants or needs.
This is where technology could be especially useful. Technology can be used to cut through the credit clutter with a seamless, unbiased, low cost, trustworthy experience while helping users to get accurate and customised knowledge on diverse topics in the complex jargon filled world of retail personal credit. AskCred is one such effort. It is India’s first AI based credit helpline which helps users to navigate the financial maze of debt, budgeting, credit cards, debt traps, credit scores and a lot more. Being credit literate should not be a function of access to knowledge. It should be cheap and universal.