Page 40 - Banking Finance August 2025

ARTICLE

tions. P2P lending offers flexible terms and benefits India Demographic: India is a young country with mil-
borrowers who might not qualify for bank loans. lions of new youngsters joining workforce or work in
Buy-Now-Pay-Later (BNPL) Services: Companies like informal sectors. Such individuals also lack proper credit
ZestMoney and Simpl provide BNPL options, allowing history and require alternative lending models to get
access to credit.
consumers to make purchases and repay in installments
without using credit cards. This model is particularly
popular among young and first-time borrowers. Data used in Alternative Credit Scoring
Microfinance Institutions (MFIs): MFIs like Bandhan One of the most significant innovations in credit scoring is
Bank and Ujjivan Small Finance Bank cater to low-in- the use of alternative data sources to evaluate an
come and rural borrowers by offering small-ticket loans individual's financial behavior. Since many Indians lack for-
with minimal documentation. mal credit histories, alternative data provides a more com-
prehensive and inclusive approach to credit assessment.
Fintech-Driven Credit Solutions: Companies such as
Telecom and Utility Payment Records: Payment his-
Lendingkart and Razorpay Capital provide credit to tory for mobile phone bills, electricity bills, and broad-
small businesses using AI-based risk assessments and band services is now being analyzed to assess credit-
alternative data sources.
worthiness. A borrower who consistently pays utility bills
on time is likely to be financially responsible, even if bor-
Advantages of Alternative Lending for rowers do not have a traditional credit score.
Financial Inclusion Transaction Data from UPI, E-Commerce, and Digital

Alternative lending is playing a crucial role in bridging India's Wallets: The rise of Unified Payments Interface (UPI)
credit gap by making loans more accessible to underserved and digital wallets such as Paytm, PhonePe, and Google
populations. Pay has created a vast repository of transactional data.
Expanding Access to First-Time Borrowers: Many in- Regular digital transactions and e-commerce purchases
dividuals in India, especially in tier-2 and tier-3 cities, indicate a borrower's financial stability and spending
do not have a formal credit history. Alternative lend- capacity, helping lenders gauge the repayment ability
ing allows them to access small loans, build a credit pro- of their prospective borrowers.
file, and eventually become eligible for larger financial Behavioral Analytics (Spending Habits, Online Pres-
products. ence, Employment Patterns): Fintech companies now
Faster and More Efficient Loan Processing: Unlike tra- analyze behavioral patterns, such as spending habits,
ditional bank loans that require weeks of processing, social media activity, and employment records, to as-
alternative lending platforms approve and disburse sess loan applicants. Someone with stable spending
loans instantly, helping borrowers meet urgent finan- habits and a consistent income source-even from gig
cial needs. work-may be seen as a reliable borrower.
Reduced Dependence on Collateral-Based Lending: Case Studies of Indian Fintech Companies Using AI
Traditional banks often require property or other as- for Credit Scoring: Several Indian fintech firms are lead-
sets as collateral, making it difficult for lower-income ing the way in AI-driven credit assessment:
individuals and small business owners to secure loans. o KreditBee uses AI to analyse user behaviour, mo-
Alternative lenders use digital credit scoring models, bile data, and transaction patterns to offer instant
reducing reliance on collateral. personal loans.
Inclusion of Gig Workers, Micro-Entrepreneurs, and o Lendingkart leverages ML algorithms to evaluate
Rural Populations: Many gig workers (e.g., delivery ex- SMEs based on cash flow projections, digital pay-
ecutives, freelancers) and small business owners lack ment history, and GST filings.
fixed monthly salaries, making them ineligible for tra- o ZestMoney employs AI-powered models to provide
ditional loans. Alternative lending models consider cash Buy Now Pay Later (BNPL) financing to consumers
flows, digital transactions, and work history to provide without credit scores, using their e-commerce and
them with credit. spending behaviour.

36 | 2025 | AUGUST | BANKING FINANCE