Redefining creditworthiness for financial empowerment

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This article is a part of the essay series: “The Freedom to Know: International Day for Universal Access to Information 2024”

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In India, financial inclusion remains a critical and unresolved issue, with a significant portion of the population excluded from formal banking services. Traditional credit systems, anchored in rigid, conventional data points, have sidelined individuals without established credit histories, creating an inherent barrier to financial access. But as the digital age brings forth a tidal wave of accessible data, fintech innovators are beginning to rewrite the rules. By leveraging alternative data sources—such as utility payments, mobile phone usage, and social media activity—these companies are developing new credit-scoring models that democratise access to credit. Access to information sits at the very core of these transformations, and when harnessed effectively, it becomes the driving force behind groundbreaking innovation and profound social change.

By leveraging alternative data sources—such as utility payments, mobile phone usage, and social media activity—these companies are developing new credit-scoring models that democratise access to credit.

The real essence of innovation lies not just in the availability of data, but in how it is leveraged to drive social equity and economic empowerment. However, this transformation brings its own set of challenges, with ethical concerns and data privacy standing at the forefront. The journey ahead is filled with hurdles, but the potential for creating a more inclusive financial system is equally vast.

Understanding alternative credit scoring

Alternative credit scoring leverages non-traditional data sources—such as utility payments, mobile transactions, and even social media activity—to assess an individual’s creditworthiness, stepping away from conventional credit reports. By analysing digital footprints, fintech firms open up financial opportunities for those excluded from formal banking systems. In India, the need for alternative scoring is pressing, as many remain “credit invisible” due to informal work and lack of documentation. Without access to traditional loans, people often turn to predatory lenders, perpetuating financial instability. This shift not only democratises credit access but also paves the way for broader financial inclusion in emerging economies like India.

According to the Global Findex Database 2021, only 35 percent of adults had a bank account as recently as 2011, highlighting the long-standing barriers to financial access. The Reserve Bank of India’s (RBI)Financial Inclusion Index (FI-Index) reflects gradual improvements, rising from 56.4 in 2021 to 64.2 in March 2024. This persistent gap underscores the urgent need for alternative credit scoring models that can democratise access to financial services for those currently excluded from formal banking systems.

Without access to traditional loans, people…