Why use muscle? Let a bot be the debt collector and never lose a customer

 Like in most emerging markets, these last-mile hurdles pose a frustratingly complex challenge to India's creditors. They also increase the overall risk premium for rural advances

A 2021 remake of getting Shorty might not have much use for John Travolta’s Miami mobster character. The debt collector role could go to a bot.

You can test this hypothesis in a most unlikely place to roll out a new technology: the Indian countryside. The setting is perhaps not as odd as it seems, with about 5% to 10% of the country’s farmers not repaying their tractor loans on time. The explanations for tardiness range from failed crops to medical emergencies and strategic defaults in anticipation of state-mandated debt waivers, a regular feature of the political economy. But delinquency often stems from more mundane reasons: Borrowers forget their due dates or fail to withdraw cash to pay the nonbank financiers who provide the bulk of loans for farm equipment purchases.

Like in most emerging markets, these last-mile hurdles pose a frustratingly complex challenge to India’s creditors. They also increase the overall risk premium for rural advances.

Of late, three things have changed. First, the world’s cheapest data prices have made smartphones ubiquitous. Second, a strong push for financial inclusion has seen more than 400 million no-frills savings accounts opened in the last seven years. Finally, banks are now on a nationwide mobile payment network that is fast, convenient, and supports apps like Google Pay and Walmart Inc.’s PhonePe. Google has even recommended the architecture to the U. S. Federal Reserve.

Yet for all the help from technology, collections are still hard in villages due to barriers of language, education, and entrenched cash use. Farmers simply don’t know how to use the new digital tools. Or they may miss a deadline because of a temporary cash-flow mismatch. When creditors respond by handing over borrowers to third-party recovery agents, scandals emerge. It’s a universal problem. In Indonesia, the 2011 death of a cash-strapped small businessman in Jakarta after alleged harassment by collectors led to a two-year ban on Citigroup Inc. from acquiring new credit card customers in the country. Even when things don’t go to such extremes, unpleasantness and soured relationships usually follow.