The history of organized credit bureaus dates back to 1898. What started off as an endeavor in the USA to create a list of customers with an indication of their credit worthiness for the local retail grocers’ association, has today grown into the tool used by lenders across the world to assess the credit worthiness of prospective borrower.
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 financial mainstream every year. This, in turn, is expected to give rise to an astronomical increase in the demand for all kinds of products and services in general and fuel the derived demand for credit in particular.
A good understanding of credit and its active management could prove to be the key to a world of conveniences and opportunities. Retail credit penetration in India is far lower than it is in many other 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. The importance of retail credit in our lives underlines the need for everyone to be credit conscious. A lack of understanding of how to manage credit can lead to a situation that potentially could be financially devastating. However, the awareness of credit and credit management tools is very low in India.
Credit bureaus arrived in India with CIBIL, Credit Information Bureau of India Limited, getting established in 2000 in collaboration with TransUnion. Thereafter, Equifax, Experian and Crif Highmark also started operations in 2010. While India has four bureaus, the credit scores are commonly known as CIBIL Scores.
Among the population of 1,250 million, 400 million individuals have presence on credit bureaus today. It is indeed an achievement given the demography of population and that practically CIBIL commenced the operations about a decade back.
Growth Of Credit Bureaus in India
Today in India, the credit bureaus are on the path of gaining importance that they carry in developed economies. Credit scores, while currently are being used primarily by lending institutions to decide upon a credit request, the Credit Information Companies Act also gives access of Credit Bureau to many other businesses like telecom, insurance, security exchange, stock brokering firms among others. It is just a matter of time before the other industries start accessing the bureau data. As a matter of fact, some telecom and insurance providers have already started factoring in the bureau data base in their underwriting process.
The awareness about the importance of being credit healthy is also setting in and people are taking measures to maintain their credit scores at desirable levels. The Reserve Bank of India, which is also the regulator for Credit Information Companies in India apart from being the central bank, has also started to focus on further strengthening the Credit Bureaus. As per a recent notification, all lending institutions and banks are required to report the data to all bureaus.
All the developments are only going to create the environment which is better for lenders and borrowers alike. It is going to be beneficial for lending institutions since they shall be able to get reports from more than one bureau and at competitive price. As for borrowers, the interest rates are going to get aligned with the risk profile and people who strive to improve CIBIL Scores shall have access to funding at lower rate of interests.
Written by Arun Ramamurthy: author of “Unlock the Power of Your Credit Score” ; India’s first book on credit scores.