Go to your kitchen. Pick up a fruit, any fruit. No matter how fresh that fruit is, it has probably changed hands about 5-7 times before landing up in yours. It has arrived via the Azadpur Mandi, trucks, trams and trains. Impressive, until you realise that fruits are mighty expensive to procure these days. Then you just get pissed.
Part of the reason why this happens is because of ‘Arathiyas’ who act as middle men for our nation’s Vegetable and Fruit produce. In a country where electricity, illiteracy, road connectivity and food processing infrastructure is really bad, there is only one thing worse. The Credit Market for the rural masses.
That’s why these ‘Arathiyas’ exist because apart from being the transporters, guaranteers, collectors and distributors of farm produce, they also act as Credit Providers for rural farmers. Without this credit small, impoverished and rural farmers would never be able to buy seeds, fertilizers, implements etc for the next crop.
And this unfortunately isn’t just true for farming households who form an approx 60% of our population, it is also true for artisans, weavers, small time businessmen, far flung kirana stores etc. It’s because of the paucity of good ‘formal’ credit that many of these areas continue to remain impoverished and underdeveloped. To help out, the government has come up with a number of schemes (leaky) and the private sector has also chipped in with micro-financing. They have been successful only in a few areas. The rest continue to have money lenders charging above 50% compound interest or in worst case scenarios, bonded labour (as a way of paying off debts).
History has shown that those countries which invest in the development of credit and insurance markets, show greater investments (since there are more places to put capital in), higher velocity of money(consumption increases) and efficient markets (smart money always finds the best things to invest in, within the right conditions). All of this leads to better living conditions and a control on famr prices.
Europe and the US have always had great credit markets and hence, continue to reap the benefits even today (yes, even today).
However in India, we don’t see the availability of credit, even for many middle class families and SMEs. And the reason for an under-developed credit market, apart from physical infrastructure (like employees, bankers, offices, field staff etc) is the absence of authentic data/information.
Information?
Yup. If you don’t get it then do this little mental exercise.
Let’s say you were in school again, happy happy school days.
Your parents give you Rs. 100 a month out of which you usually end up saving Rs. 20. Now since you are a smart kid (ofcourse you are, you smartass) you want that money to give you some return if you invest it. But you don’t want to lose it by being too aggressive (you are smart and scared) and so decide to put it in the safest investment possible.
Soon God gives you that opportunity. He presents 3 people in front of you.
1. Your friend. Wants to borrow money and promises to pay you back in 1 month with Rs. 2 (10%) extra
2. Your adult working neighbour. Wants to borrow money and promises to pay you back in 1 month with Rs. 1 (5%) extra
3. A nice stranger. Wants to borrow money and promises to pay you back in 1 month with Rs. 6 (30%) extra
Now if you are a smart person, which I think you are, you will choose option No. 2. (If you haven’t remind me to unfriend you or unfollow you or just un-whatever you)
Why? Simple. You know him (not the stranger) and you know he has a source of income (your childhood friend does not) and you can always tell Daddy if he doesn’t pay up.
So basically you had some leverage (Daddy) and Information.
Credit Markets work exactly like that where they need leverage (The Law of the land, the property as security etc) and Information (Your Credit Score, financial background, history, reputation, income statements etc)
Needless to say most of India may have provisions for leverage (excluding maoist, ulfa, terrorist badlands etc) but not the information. I mean who has authentic information about small farmers and labourers when they probably haven’t even been issued ration cards or birth certificates. With their transactions solely in cash, they remain out of the banking system and hence have no financial history.
Will you get to the point??
OK I agree I have taken longer than usual to get to the important stuff but as someone once told me “Context is a Bitch, Man!”. He was high and poor but he made sense.
So where do smart phones come into play?
Smart Phones have slowly become a vital part of our lives, just like mobile phones (non-smart) have become vital for rural India.
You now have sprinklers which turn on/off based on missed calls by farmers. You have money being transferred by migrating labour through the transfer of talk time. Farmers and businesses make trades based on market prices in the city thanks to mobile communication.
Now imagine what smart phones meant for the masses can do?
Once these smart phones are equipped with various Indian languages and dialect recognition software, powerful batteries, tough outer shells, easy to understand functionality, voice command capability, social media apps for rural India and default bollywood ringtones (a must), they can potentially be used to collect information about purchases through m-commerce, family health, social connections, complaints, issues, financial position etc of a person.
Once the smartphone has been made easy to use and integrate a ‘frictionless’ experience for rural populations to do transactions or feed in information or to stay connected, we will slowly be able to create the kind of personal and financial picture required about a person to give him/her credit.
I understand that many of you are by now jumping with either incredulous fury (about issues of privacy) or just snickering at the idea for its outlandishness. So take this. Yes, there will be privacy issues which a regulator and the government will have to sort out. But I would rather that farmers not commit suicide, children not go malnourished and families not remain bonded labour because of this reason.
For those of you who are snickering at this idea of information being used to judge credit worthiness, get this. It’s already happening.
No, I am not talking about some new government initiative like Aadhar (which will also help a lot). I am talking about your CIBIL score.
Yes my friends, we all have a credit score, already used by banks, called the CIBIL score. You, me and the guy next to you. We all have one. Look it up (If you have started working or ever worked or have a bank account).
My Prediction
Smartphones will be become the single biggest aggregator of personal information for our country. With m-commerce around the corner, cheaper handsets, better batteries and growing consumption of media through smartphones, this may be our chance of leapfrogging into a well developed credit system.
And the torchbearers will be startups who have the ability to develop apps and services for this market.
Startup Yapper 