Financial Inclusion and Alternate Credit Scoring: Role of Big Data and Machine Learning in Fintech

65 Pages Posted: 14 Jan 2020 Last revised: 7 Dec 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Shashwat Alok

Indian School of Business (ISB), Hyderabad

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Sudip Gupta

Johns Hopkins University

Date Written: December 21, 2019

Abstract

We use unique and proprietary data from a large Fintech lender in India combined with machine learning models to document that alternative data captured from an individual’s mobile phone, such as the number and types of apps installed, measures of social connections, and borrowers’ “deep social footprints” based on call logs, can substitute for traditional credit bureau scores in credit risk evaluation and improve financial inclusion. Using machine learning-based prediction counterfactual analysis, we find that alternate credit scoring based on an individual's digital presence can expand credit access to financially excluded individuals who lack credit scores without adversely impacting default outcomes. Our findings imply that alternative digital data sources have the potential to significantly improve credit risk assessment and financial inclusion in developing countries.

Keywords: Fintech, Big data, Credit scores, Financial inclusion, Lending, Machine learning, Mobile footprint, Prediction Counterfactual, Social footprint, Social capital, Digital economy, Open banking, Data sharing

JEL Classification: G20, G21, G29

Suggested Citation

Agarwal, Sumit and Alok, Shashwat and Ghosh, Pulak and Gupta, Sudip, Financial Inclusion and Alternate Credit Scoring: Role of Big Data and Machine Learning in Fintech (December 21, 2019). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=3507827 or http://dx.doi.org/10.2139/ssrn.3507827

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Shashwat Alok

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India
914023187188 (Phone)

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Sudip Gupta (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

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