Copyright infringement not intended

Picture Courtesy: livemint

Context:

The Grameen Credit Score (GCS) is a newly launched initiative introduced by the Finance Minister in the Union Budget 2025.

About the Grameen Credit Score (GCS)

The Union Finance Minister introduced in the 2025-26 Budget to assess the creditworthiness of rural women entrepreneurs in Self Help Groups (SHGs).

Public sector banks developed this framework to integrate SHG members into India’s formal financial system.

Unlike traditional credit scores (e.g., CIBIL), which depend on bank transactions and loan histories, the GCS evaluates non-traditional data such as savings patterns, SHG meeting attendance, and microloan repayment records.

Why Is It Needed?

Rural borrowers, mainly women in SHGs, often lack access to formal banking services due to insufficient data. GCS helps include them by evaluating non-traditional data.

GCS considers factors like savings behavior, group meeting attendance, and SHG repayment records, providing a more tailored assessment.

With a formal credit score, rural women can access better loan products, expand their businesses, and build stronger credit profiles.

The GCS framework uses the following parameters to calculate scores:

Features

The GCS will collect data from various sources, including SHG transaction records, mobile banking data, and government schemes, to create a “digital footprint” for rural borrowers.

The system will update scores dynamically as borrowers make payments, save money, or attend meetings, helping banks offer loans with appropriate interest rates and repayment terms.

With a reliable credit score, banks can design customized products such as microcredit or tailored credit cards with limits up to ₹5 lakh for SHG members.

The credit score framework is expected to improve the overall health of the microfinance sector by identifying fraudulent behavior and encouraging responsible borrowing.

Benefits

Borrowers

• Access to formal loans, credit cards, and other financial products.
• Empowerment to grow businesses and improve economic status.
• Building a formal credit history for future borrowing.

Banks and Financial Institutions

• Better risk assessment of borrowers without conventional credit records.
• Reduced default rates and non-performing assets.
• Ability to offer customized loan products.

Economy

• Increased financial inclusion and overall economic activity.
• Stimulated business activity and development in rural areas.

Implementation Challenges and Way Forward

Gathering accurate data from rural areas with lower digital literacy poses a challenge.

Reliable mobile and internet connectivity in rural regions is essential for successful implementation.

Both borrowers and bank staff need training to understand and effectively use the new credit scoring system.

Advanced analytics and machine learning will be essential for refining the model over time as more data becomes available.

Must Read Articles: 

SELF HELP GROUPS (SHGs)

Self-Help Groups 

Source: 

LIVEMINT