Alternative data help to close the gaps in lending inequalities

1. How does alternative data help to close the gaps in lending inequalities? The lending sector plays an active role in the economy of every nation. The more users that have access to the lending services, the more money gets injected into the economy for the government to use. A large part of the Indian population who lived predominantly in the remote or rural areas was not able to avail these benefits as they lacked a proper credit history or fixed income source. These limitations did not allow them to pass the credit underwriting process and thus stopped them from getting credit loans. But the introduction of alternative data has allowed banks and digital lenders to reach out to these communities and help them get credit for emergencies. A brief history about alternative data Alternative data comprises the data set that a user generates on the online medium. This can comprise their online payment details of utility bills, loan EMI information, their social media browsing history, shopping lists on e-commerce platforms, educational background, employment record, and other such details. These data sets are used by banks and digital lenders as parameters to check the creditworthiness of the individual. Various artificial intelligence algorithms and machine learning models work with this alternative data during the credit underwriting process which makes it quite fast and slightly more accurate. Benefits of the use of alternative data Many banks and digital lenders have started including alternative data for their credit underwriting process to check the creditworthiness of the loan applicants. This gives the following benefits:

2. ●It helps to gauge the credit risk of the individual even if they lack a proper credit history. This allows more people to qualify for a credit loan, especially people who are doing this for the first time and have an almost non-existent credit score. ●Since the identity information and alternative data details of the individual are received from verified third-party channels, it becomes harder for individuals to commit frauds or scams using a fake identity. ●Since the application and processing are done online, it helps many people from remote areas to complete it from their homes. The process is also faster and one can receive the credit amount in their bank accounts soon after getting approved in the credit underwriting process. ●All the information received is the latest and there are no issues regarding any update requirements. These benefits allow banks and digital lenders to reach out to the people deprived of proper financial services in the past and help them get quick credit through alternative data.