India’s made an impressive advance in credit rating for individuals in only two years, with the credit-rating agency CIBIL. It still has glitches, but it’s trying. When I was researching my book in early 2008, Indian lenders were still grumbling about problems in assessing the individual credit-worthiness. Yet with booming consumer markets, companies sold all kinds of durables on installment plans.
In the US, consumers who fail to pay know it’ll hurt their credit rating, and their ability to get future loans or even to rent housing or get jobs. In India, without such a threat, lenders relied on collection agencies, some of whose strong-arm tactics notoriously hit the headlines. They were not quite as bad as Mafia enforcers, but may have come close.
CIBIL, a credit-rating agency started by State Bank of India, HDFC, Dun & Bradstreet, and Trans-Union (the last two being the US companies or their Indian affiliates), started consumer credit reporting in 2006/2007, but it hadn’t reached critical mass. Now it has.
Of course there’s a chorus of complaints from consumers who have run into problems of poor data.
Such complaints are common (and justified) in the US. In one US credit report I saw, the agency managed to confuse the transactions of three people: The reportee; her brother (who had the same initials); and a different person with the same name, living in another state.
So we can expect many more problems in India, where there’s no such unique identifier as a Social Security Number (though the agencies use Permanent Account Numbers, passport numbers, and Voter identification numbers for ID). People can (and do) spell or write their names in multiple ways, since they are transliterations of names in other languages; but English is the language of record-keeping. And that record-keeping is still not entirely streamlined and mechanized. Identity theft is a nascent crime in India. However justified and expected, the glitches annoyed users, particularly since the Right to Information Act does not apply to CIBIL which is not a governmental organization.
Recently, CIBIL has taken a major step in the right direction: Individuals, who earlier had no right to get their own credit reports, can now pull one for a price of Rs142 (around $3). There’s a procedure for correcting mistakes, too, though a cumbersome one; the person must contact the financial institution that sent in the erroneous information; get them to correct their records; and get them to tell CIBIL.
CIBIL’s success will be good news for companies. Not only will it make for more objective consumer lending, it may also alter consumer behavior toward more responsible borrowing since the reports are quite transparent. It’s also encouraging that India was able to go from nothing to a functioning agency in a relatively short time.
Three more agencies have been licensed recently: Experian, Equifax, and newbie Highmark.