PSEUDONYMS. Disguised identities. Fake addresses. With little deterrent against frauds and defaults, Indias consumer lending industry has been gasping for growth. If consumer lending has taken off anywhere, its probably in auto financing where, due to certain provisions of the Motor Vehicles Act, it has been possible for financiers to repossess the vehicle which has a resale value in the market.
"The biggest stumbling blocks in the take-off of the mass retail finance business in India," says Ashoke Dutt, head of retail banking at Citi-bank, "are lack of legal recourse (for lenders) and the absence of any database on individual creditworthiness."
Financiers are unwilling to share defaulter information with one another. As a result, a crooked borrower can default on a loan from company A and happily get a loan the next month from an unsuspecting company B.
This state of affairs is now about to change. A bunch of retail finance bigwigs like Citibank, Countrywide, Sundaram Finance, Apple and Lloyds amongst others are joining hands at the initiative of Escorts Finance managing director Jayant Dang to put together a database of defaulting individuals. "The key to the success of any mass lending programme lies in a preventive mechanism against defaults rather than the corrective or coercive mechanism used so far to recover dues from errant borrowers. A default list will go a long way in instilling fear in the minds of wilful defaulters that they cant go scot-free and that if they break the rules of one institute, theyre unlikely to get credit elsewhere or even new services like paging, cellular and cable," says Dang.
This isnt the first time such an attempt is being made. Two notable failures are Equinox and ONICRA. The first failed because no company was willing to share its customer base; the second because nobody was willing to trust ONICRAs rating enough to base lending decisions on it. The new initiative could be more workable. For several reasons. First, it doesnt ask participating companies to share their entire customer database. "It would be foolhardy to ask, say Citibank, to furnish its full database that it spent resources, time and energy on building over the last decade," says Dang. He wants companies to share only their defaulters list; the more the data each contributes, the cheaper will be the cost of access to common information.
The database will be under co-operative owner-ship. The contributors are forming a joint venture with a nominal paid-up capital, which will own the data pool. The board of directors will be nominated from amongst the contributing companies with the chairmanship being rotated. "The idea is to retain the spirit of partnership. No predominant control and no external influence," says Dang.
Third, ownership and management do not mingle in the project. While the non-banking finance companies (NBFCs) and banks who contribute to the database will own it, the management has been delegated to HCL Deluxe, a joint venture between HCL Corporation and Deluxe, a Fortune 500 company and a world leader in electronic commerce and processing.
Fourth, the project is a commercial venture: data will be available to all at a fee by year-end. The cost dynamics are being worked out but an upper limit of Rs 100 has been finalised for one-time access. As the service picks up, the costs will come down with volumes. Says Ashwini Windlass, managing director, Max Hutchison: "Its a great move. The legal recourse framework is missing and unlikely to take shape in a hurry. This is the next best option." Sunrise industries like cellular service providers today have to deploy expensive credit control and verification procedures. Yet, questionable collectibles are in the range of 10 to 15 per cent, which is likely to go up as business grows.
Its an idea whose time has come. Says Kurt Schneiber, business manager-Citibank Cards, Global Consumer Bank: "Recently, through the Visa and MasterCard associations, card-issuing banks in India have begun to develop a plan to cross-reference efforts in credit management. Sometimes, individuals take a card planning to use it in a fraudulent manner. If banks work together to ferret out such cases, it helps." These moves will at last bring some method into the mad business of consumer finance. And mark a clear coming-of- age of this rough-and-ready industry.
