By Sucielia Myliemngap
“Do your duty and a little more and the future will take care of itself. ”
..Andrew Carnegie
Meghalaya is becoming an increasingly diversified market for banking & finance with various organizations that includes banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises making a beeline to offer the public a gamut of services like credit, savings, insurance, mutual funds, money transfers, etc. However, most people especially in the rural areas of the State don’t have the required financial skills such as the ability to calculate interest payments; understand financial products and understanding their own financial capability. Lack of awareness of basic financial products and concepts as simple as savings accounts, interest rates, insurance, and loans results in reckless money management. Government gives grants and subsidies with the fundamental objective of community improvement and addressing poverty. However inefficiency in terms of public education have at most times robbed them of their effectiveness. Due to inadequate attention by banks and micro-finance institutions (MFIs) to qualitative aspects of lending, there is a huge default in repayment of loans and a consequent erosion of repayment ethics which in turn affect profitability and viability of the financial institutions.
The need of the hour is for the citizens to understand the adverse impact of financial ignorance. In Meghalaya where there is a plethora of subsidized government schemes and grants are available to the rural population it creates a lot of misconception when it comes to credit or loans availed from mainstream financial institutions. This simply is because not enough financial awareness and mobilization has been done in the community. A lot of people feel it is not important to pay back loans and that nothing of consequence will happen to them. However they don’t understand how it will sooner or later affect them thereafter. People need to understand that credit is a contractual agreement in which a borrower receives something of value and agrees to repay the lender at some later date, that credit is to be repaid and that not repaying a loan will affect their credit-worthiness and in the end lose a lot of opportunities.
To arrest accretion of fresh non-performing assets (NPAs) in the banking system Credit Information Bureau (India) Ltd. (CIBIL) was set up in January 2000 by the Reserve Bank. CIBIL was primarily to create an adequate, comprehensive and reliable information system on the borrowers through an efficient database system for credit risk management. Therefore a database that contain the basic borrower information (such as names, DOB’s and addresses), past payment history, overdue amounts, records of all the credit facilities availed by the borrower, suit-filed status and number of inquiries made on that borrower, by different members or institutions was maintained by CIBIL. Similarly, another Credit Agency known by the name of High Mark Credit Information Services was incorporated in 2005 and is based in Navi Mumbai, India. It also keeps a record of loan repayment history on credit facilities extended to an individual across the board. This helps lenders analyse the risk profile of individuals before extending credit and also keeps non-performing loans in check .Banks and other financial institutions access the data of agencies like CIBIL and High Mark to know the credit rating of any loan applicant to help them decide on whether to approve or not approve a loan application.
Therefore it is imperative that citizens should be sensitized in understanding various agencies such as CIBIL and High Mark. They should know that banks, financial institutions and government institutions have access to their database and will base their decisions to approve any loans or schemes on the credit rating provided by these agencies. Credit score is a measure of one’s credit worthiness and poor credit rating means the person is at higher financial risk and will lose the opportunities of availing schemes and subsidies loans being provided by the Government or any financial institutions.
Everyone dreams of owning a home, buying a new car, improving one’s own livelihood, giving their children a better education or taking their family on vacation. But, poor credit can be a roadblock to one’s ability to achieve these goals. Though credit is a challenge no matter what level of income one earns, being credit worthy opens opportunities when one requires them most such as access to more loans, ability to purchase goods and services on credit and fulfilling family requirements and future goals.
Unfortunately there are very few agencies that provide financial education to people who look for credit. It is imperative that every potential borrower is scanned by his/her earlier financial dealings with financial institutions. But that is not possible for the poor who can only access credit through non-banking financial companies. In this aspect, churches and other social platforms need to pitch in an educate their adherents of the importance of credit rating of potential borrowers. This would make Meghalaya a model state as far as borrowing/lending of public money is concerned.
(The writer is Regional HR Executive- North Eastern region, BASIX- BSFL)