Greaves Retail to address issue of customer creditworthiness without formal scores

Greaves Retail, the retail unit of Greaves Cotton, has formed partnerships with local community lending groups to address the challenge of assessing the creditworthiness of customers who lack formal credit scores.

Partnerships have been formed in West Bengal, Uttar Pradesh, and Assam, among other states. 

Narasimha Jayakumar, CEO of Greaves Retail, explained that in the traditional world of formal credit scoring, lenders such as banks and non-banking financial institutions (NBFCs) closely examine factors like earnings stability, repayment history, existing loans, and other relevant factors. However, this approach poses a problem for new credit customers who may not have a complete credit profile.

To overcome this challenge, community lending groups rely on alternative criteria to make lending decisions. They consider the purpose of the asset being used on a daily basis, especially in the case of vehicles that operate locally for first- or last-mile deliveries. These community-based lenders also have a deeper understanding of borrowers, including whether they are locally based and if they own their homes. Additionally, they take into account the borrower's track record with informal lending groups.

Furthermore, community-based lenders are embracing technology to enhance their assessment process. They utilise tools like UPI payments to gain insights into the spending habits and transaction history of prospective borrowers. By doing so, they can create a more comprehensive and accurate picture of a borrower's creditworthiness, moving beyond the limitations of the informal credit scoring model.

Jayakumar emphasised that Greaves Retail is actively working on facilitating connections between new-age lending companies and these types of borrowers. The aim is to support access to credit for individuals who may not fit into the traditional credit assessment framework.

Jayakumar also highlighted that a significant portion of such credit could potentially originate from vehicle dealers or service centres operating in specific areas. This is because these dealers or service centre operators often have a personal connection with the borrowers when their vehicles come in for servicing or require spare parts. This relationship-based evaluation adds a more holistic dimension to the credit assessment process.

Thus, by considering factors beyond formal credit scores and leveraging technology, these community-based lenders are helping to provide a more comprehensive evaluation of creditworthiness, ultimately expanding access to credit for underserved individuals.