Lending to lower-income households and small and informal enterprises is challenging. Many of these customers have limited familiarity with formal financial services, and lenders often have little to none of the data they might traditionally use to make sound lending decisions.
But some leading lenders are now using increased computing power and new sources of information and data (including mobile-phone usage patterns, utility-bill payment history, and others) to build better risk models. With these assets, and with scrupulous attention to privacy laws and customer preferences, banks, retailers, utilities, and telecommunications providers can make responsible lending decisions in low-touch and low-cost ways.
Download the full article on which this excerpt is based, New credit-risk models for the unbanked (PDF–784KB).