Credit Inclusion
Making Credit Invisible, Visible
Part 1: Solving Credit Inclusion for India through AI-enabled alternate credit scoring
Half of India’s adult population is credit unserved
According to a TransUnion CIBIL study half of the adult population was considered to be credit unserved by the end of 2021, and more than 160 Mn population, i.e., 20% falls under the underserved category.
The credit-eligible adult population are those in the age group of 20 to 65 years based on generally adopted lending policies.
This research also showed that there had been an increase in credit-served consumers, from 91 million in 2017 to 179 million in 2021, bringing estimated credit-served levels from 12% to 22% of the adult population.
Newly Served Exceeding Expectations in terms of Delinquencies
Lenders face the conundrum of confidently extending credit to newly served consumers or consumers without a single credit product in their wallets, and who likely have what is traditionally considered a risky credit score.
This assumption was proved wrong through this study by comparing the credit delinquency rates of the newly served against credit-established consumers. This comparison was performed on the most commonly held products, i.e., Cards and unsecured personal loans.
Many lenders might not expect newly served consumers to perform as well as those with more established and extensive credit experience. However, the newly served exceeded expectations by demonstrating overall positive payment performance.
Accelerating the Pace of Credit Inclusion through Alternate Credit Scoring
The lack of credit score and credit history for unserved consumers is an impediment to getting credit opportunities, as many lenders are hesitant to extend credit to consumers without any credit history or score. These traditionally unscorable consumers face a “chicken or egg” conundrum of how to get that first credit product when they lack a credit history.
Although India has made significant progress in increasing the levels of credit inclusion across the country in recent years, the current statistics about unserved and underserved consumers highlight the importance of alternate credit scoring mechanisms beyond the traditional credit scoring system.
The increased digital adoption has already paved the way for generating new data sources around the consumers. The current focus should be on how to extract the greatest value from these new data and make these credit-invisible populations visible.
Conclusion
In recent years India has seen a significant increase in the level of credit inclusion, thanks to the fintech companies, but this is just the tip of the iceberg, still, there is a long way to go. We need a robust alternate credit scoring mechanism that can reach to the masses beyond the traditional scoring system to accelerate the rate of credit inclusion.
In our next blog, we will discuss how CueNex is blending AI with new data sources to create an alternate credit scoring system, thereby accelerating credit inclusion for vast population groups in India
