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Powering Financial Inclusion Using Alternative Data – A Framework

India has 63 million MSMEs contributing 31.6% of the GVA and employing 111 million people across all sectors. Yet, an important barrier to these engines of growth remains the lack of access to formal financing channels. As I have pointed out frequently in my articles on this forum, a recent study released by Omidyar-BCG estimates that 40% of MSME lending is through the informal money markets.

Many businesses and their owners may simply have no record with the credit bureaus (the so-called ‘no-hit’); or if they return a file, there may be limited historical indebtedness (a few ‘trade-lines’) to infer anything significant from the data (the so-called ‘thin file customers’). In these cases, lenders lack a reason to take an affirmative call about the credit. This lost opportunity to unlock good credit prospects is a social loss because borrowers that have the capacity to pay but not the ability to signal that capacity are potentially caught in a vicious cycle of informal credit. Lenders also lose out on a potentia ...

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