Page 38 - Banking Finance August 2025

ARTICLE

The Role of Credit

Scoring and

Alternative Lending

in India's Financial

Harsh M Sankhala
Inclusion Chief Manager, Research,

SBIIT, Hyderabad

Financial inclusion extends beyond mere access to bank accounts, it encompasses a broader goal
of ensuring that financial benefits effectively reach the under banked population. Recognizing
this need, the Reserve Bank of India (RBI) introduced the Financial Inclusion (FI) Index as a
comprehensive tool to assess the depth and reach of financial inclusion across the country.

Introduction footprints, transaction data, and artificial intelligence-
driven risk assessments, alternative credit assessment meth-
Financial inclusion has emerged as a critical driver of eco-
ods provide a more inclusive and dynamic approach to
nomic growth and social development in India, particularly
those traditionally excluded from the formal banking sys- evaluating creditworthiness.
tem. With a significant portion of the population still lack-
ing access to credit, savings, insurance, and digital payment Defining Financial Inclusion
systems, financial inclusion is essential for empowering low- Financial inclusion extends beyond mere access to bank
income households, small businesses, and rural communi- accounts, it encompasses a broader goal of ensuring that
ties. It fosters economic participation, reduces poverty, and financial benefits effectively reach the under banked popu-
enhances overall financial resilience. lation. Recognizing this need, the Reserve Bank of India
(RBI) introduced the Financial Inclusion (FI) Index as a com-
Despite notable progress through government initiatives prehensive tool to assess the depth and reach of financial
like the Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan inclusion across the country.
Mantri Mudra Yogna (PMMY) and digital banking reforms,
millions of Indians-especially those in rural areas, informal The FI Index is designed to capture the multidimensional
employment, and micro-enterprises-remain unbanked or aspects of financial inclusion, including access, usage, and the
under banked. The biggest hurdle they face is limited ac- quality of financial services. By tracking progress over time,
cess to formal credit, as traditional lending institutions rely it helps identify gaps, evaluate policy effectiveness, and guide
on stringent eligibility criteria, including credit history, in- stakeholders in implementing targeted interventions to fos-
come proof, and collateral. ter inclusive financial growth. Serving as a crucial benchmark,
the index ensures that financial services penetrate
Credit scoring by alternative lending models have emerged underserved and unbanked segments, thereby promoting
as game-changer in bridging this gap. By leveraging digital economic empowerment and reducing inequalities.

34 | 2025 | AUGUST | BANKING FINANCE