Leveraging Transactional Data for Micro and Small Enterprise Lending

This note shares two case studies providing evidence of the value of transactional data for credit scoring of different types of micro and small enterprises. The financial service providers are Indian fintechs Fundfina, which offers credit to small shops, and KarmaLife, which provides credit for platform workers. The evidence resulting from the credit scoring models developed and evaluated for this research supports the following messages:

1. Transactional data can have similar predictive power in credit scoring to credit history.
2. Combining transactional data with credit history can result in better predictions than either of these data sets by themselves.
3. These results hold under different circumstances, including for both different types of MSEs and different types of credit histories.