New Delhi: The Finance Ministry has issued new guidelines allowing first-time personal loan applicants to seek credit without a formal credit score. This change aims to widen financial inclusion by encouraging lenders to use alternative credit indicators such as income stability, employment history and transactional behaviour. The move is expected to help young professionals, informal sector workers and recent workers re-entering the formal credit market while banks build stronger non-score-based underwriting methods.
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New Guidelines Allow First-Time Borrowers to Access Personal Loans Without a Credit Score
In a significant shift in lending practices, the Indian government has announced that first-time personal loan borrowers no longer need a credit score to apply for loans. This directive from the Finance Ministry comes as a lifeline for many individuals struggling to access credit in a competitive lending environment.
Minister of State for Finance, Pankaj Chaudhary, reaffirmed this guideline in Parliament, aligning with the Reserve Bank of India’s (RBI) recommendations issued earlier. This move aims to enhance financial inclusivity and provide greater opportunities for individuals lacking a credit history.
Context for RBI / markets / policy
The RBI’s decision underscores a commitment to democratizing access to finance, particularly for new borrowers. As financial institutions navigate a post-pandemic world, fostering a healthier lending environment becomes paramount to boost consumer spending and stimulate the economy.
These initiatives also reflect the RBI’s broader strategy to modernize the banking sector while promoting responsible lending practices, enabling financial institutions to diversify their assessments beyond just credit scores.
Impact: consumers, banks, economy
- First-time borrowers can now apply for loans without being rejected due to a lack of credit history.
- Financial institutions are encouraged to consider alternative indicators of creditworthiness, like income and employment status.
- This policy change may lead to increased spending, positively impacting economic growth.
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Original source: www.livemint.com
