More people in our country are getting access to the internet and enjoying the benefits that are provided through digital connectivity. In this pandemic where moving outside one’s home was severely restricted, people have become aware of various online solutions that have made their daily life more convenient. One of the sectors that have been slowly implementing more online services is the finance sector.
When it comes to getting loans, the previous process was too lengthy. Banks and other lending institutions took a lot of time to verify the documentation and conduct credit risk assessment procedures on the loan applicants. Moreover, people from rural India often lacked a proper credit history or up-to-date documents and were thus deprived of formal loans. But with the introduction of alternative data solutions, these problems are
being attended by the financial authorities.
Alternative data solutions have made the distribution of credit more inclusive
Apart from individuals, even small businesses can now get credit from lending institutions with the help of alternative data. The implementation of these solutions makes digital lending more fair, secure, and inclusive. More deserving candidates and businesses that previously got rejected due to their lack of credit history can now pass the credit risk assessment process and get their loan amount.
We can see that the beneficiaries of alternative data solutions in loan underwriting are from all sections of Indian society. But people from the lower-income margins have benefited the most. The use of alternative data along with the swift underwriting and loan approval process allows these people to gain loans quickly. This helps them a lot incase of any financial emergency.
Checking creditworthiness has become more accurate with the help of alternative data
In the formal loan application process, the applicant has to provide a list of documents and collateral (depending upon the loan) to pass the loan underwriting and the subsequent process. Individuals and businesses which lacked any important documents were deemed a credit risk because they did not fulfill the traditional criteria. Thus people were forced to get loans from informal options like moneylenders and be a victim of high-interest rates.
This situation has changed now as banks and digital lending platform have started using alternative data solutions for their credit risk assessment process. This has happened because the accessibility to smartphones and cheaper internet has allowed people to leave a large pool of data under their name. Loan providers are leveraging this data bank of the loan applicants through alternative data solutions. By analyzing these data sets which comprise of the applicants’ online spending patterns, social media
activities, and other forms of unstructured data, digital lending platforms can gauge the creditworthiness of individuals more accurately.
We can see the positive impact that alternative data has had on the digital lending situation in India. It has allowed more people to avail of loans through official channels and made them a part of the formal credit system.
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