I grew up thinking credit histories and credit scores were these evil things.
They seemed to do more harm than good.
Last summer, I quickly learned how wrong I was.
I spent my summer designing a survey for a microfinance organization in India. The work allowed me to travel southern India extensively meeting tons of entrepreneurs who on average made less than $2 a day.
They were people with zero access to normal credit and thus were far from having credit histories.
It was easy to see why they didn’t have credit histories. Most of them were born without being assigned identification documents, voting ids or tax ids. Again, this did not strike me as odd.
What did strike me as odd was that most of my fellow Indian colleagues did not have credit histories. The only credit histories they had were what their banks recorded and their banks kept that information strictly in-house.
In fact, they told me that if you wanted to get a credit card from a different bank the new bank would base their issuance on photocopies of your current credit cards and repayment statements.
Even harder to believe, the Government of India and the State Bank of India were just announcing their full launch of their new consumer credit bureau CIBIL (Credit Information Bureau India Limited) while I was there.
All this goes to show that credit history collection has a long ways to go in emerging countries like India. They are having a difficult time building histories for normal credit users, so just think what this means for people who don’t have access to normal credit.
This means that we need to come up with innovative ways to build credit histories for people who don’t use standard banks and other standard financial institutions and who don’t have proper identification documents and id numbers.
