New Credit-Risk Models for the Unbanked
This paper proposes a third path, beyond traditional consumer finance and microcredit, that could help lenders profitably serve unbanked populations, while helping societies move toward the goal of financial inclusion. It states that lenders could use increased computing power and new sources of information and data to build better risk models. Banks, retailers, utilities, and telecommunications providers can use them to make responsible lending decisions in low-touch and low-cost ways. New uses of data facilitate financial inclusion by enabling a more complete understanding of households financial needs. Providers can use this understanding to help customers make good financial decisions, offer the right noncredit products, and conduct marketing and communications in ways that are more likely to benefit distinct segments. These new approaches have their own challenges. They include gathering large volumes of data from diverse sources, difficulties in gaining access, and unfamiliarity of practitioners with the new data standards and protocols. The paper recommends the following steps to develop effective credit-scoring strategies and lend to economically active lower-income households and enterprises, namely:
- Identifying promising data sources;
- Securing access to appropriate data;
- Converting data into credit insights.
