Credit Scoring: Rocket Science in Developing Countries

by Brian Riley 0

This piece on credit scoring in India coincides nicely with the latest Mercator Advisory Group research titled “Brazil, Russia, India and China: Payment Developments in the BRIC Countries”.  We look at those markets and explain their growth and potential.  One of the themes is that India has tremendous potential but it lags what we see in China today.  Given India a decade and we believe it will blossom.

  • Disruption has finally come for the lending industry in India Fintech companies are beginning to use machine learning to evaluate the credit-worthiness of Indian SMEs and millennials.

  • The banking industry in India has traditionally funded corporate loans to those corporations who could navigate their labyrinthine processes.

  • This paradigm, however, is beginning to get disrupted, thanks to the advent of consumer lending startups, armed with complex algorithms and machine learning software to replace antiquated credit rating systems.

Certainly, this is not rocket science in Canada, United Kingdom or the US, but for developing countries this is a breakthrough.

  • Banks have tended to look upon individuals and SMEs as lower-priority customers because of their lack of credit history and collateral.

  • Without the information or the tools with which to evaluate the risk involved in lending to them, banks would offer individuals and SMEs credit cards and personal loans; however, the high risk involved makes it an unattractive section of the market for banks, and the high interest rates, inflexibility in payment options, and the reams of red tape make it an expensive and inaccessible option for potential customers.

  • Only wealthier individuals and others with long and consistent credit histories and ratings could typically get personal loans, even for smaller amounts.

The article is a quick read on how this is a breakthrough in India, though if you want to go deep on the market, take a look at Brazil, Russia, India and China: Payment Developments in the BRIC Countries”.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Read the full story here