Indian State Telangana to Use Blockchain for Unbanked Credit Scores

Indian State Telangana to Use Blockchain for Unbanked Credit Scores

The Indian state of Telangana has launched a blockchain pilot program in collaboration with U.K.-based Cognito Technologies to offer credit ratings to the local unbanked population. The move is another leap for the state in its bid to become blockchain capital of the country.

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Toward Building a Credit History for the Unbanked With Blockchain

The Telangana government will work with Cognito Technologies to establish a credit scoring system for an economically weaker section of the state’s population using blockchain technology.

For the collaboration, Cognito Technologies will partner with Stree Nidhi, a government-backed organization that offers low-cost microfinancings, to extend the project to self-help groups in the state. The group directs the flow of money lent by the government banks to the unbanked population.  

According to Murali Mohan Reddy Duvvuru, a co-founder of Cognito Technologies, the U.K.-based company will implement blockchain technology within the already established Stree Nidhi digital microfinance system. 

The partnership will see Cognito Technologies open an office in the state capital Hyderabad, and the company is set to employ a staff of 15 there to start. Meanwhile, Stree Nidhi and Cognito are scouting for a suitable district to begin the blockchain trial. 

Starting this April, the pilot programme will leverage smart contracts to record loan payments and repayments on a distributed ledger.

The first phase of the pilot aims to cover over 10,000 citizens. Participating members will be awarded credit ratings based on the transactions recorded on the blockchain.  

“The entire process of loan disbursement and repayments will be recorded on blockchain ledgers using smart contracts,” Duvvuru said. 

“Following which, the individual credit rating will be derived from the transactions recorded and stored on blockchain and the individuals will then be made aware of their credit score.”

Can the Pilot Go Anywhere?

If successful, the pilot could catalyze similar programs spreading across the state.

Cognito co-founder Duvvuru said that a good resulting credit score will onboard the traditionally unbanked to the banking system. The idea is to make it easier for everyday Telangana citizens to secure cheaper loans.

Moreover, Telangana IT and industries principal secretary Jayesh Ranjan sees value in using blockchain to create an immutable and hack-proof registry.

“Blockchain is the most appropriate tool to be implemented here,” Ranjan said.

Can blockchain technology help the unbanked population to secure microloans? Or is there a better way for such a system? Share your views in the comments section below. 

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