Creditworthiness and Delinquency- Mitigating risks using Location Intelligence | Data Sutram

Creditworthiness and Delinquency- Mitigating risks using Location Intelligence

FinancialLocation Intelligence
Samriddhi Ganguly

Samriddhi Ganguly

July 8, 2021

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Location DNA Platform

The decision by ICICI bank to integrate spatial analysis for farmer’s loan approval received warm acclamation across the Indian economic market, marking a revolutionary move in India’s banking sector. Deployment of officials to physically verify land location, the crop produces to gauge the risk of loans was time-consuming. What banks need today is a model that can deliver fast, affordable and scalable decisions. Analysis of satellite images caters to that very need.

Rewind to the era when the geospatial analysis was chimeric. The bank needed to check the authenticity of collaterals, study the credit profile of the merchant and assess the risk of lending. Enter GIS into the lending space, and the loan appraisal process becomes smooth with easy verification of collateral assets.

The golden age of Risk Analysis

Image by author: How Business Potential Metric is measured

Spatial data analysis gives a bank the big picture about its customers, the merchants and assesses how credit-worthy they are.

· Zero into a pin code, map areas of influence in the city using hexagonal grids.

· Get a 360-degree view of the borrower’s credit profile.

· Merchants are assigned a credit score based on past credit demand, and location-related factors like consumer behavior insights and affluence class.

· Predictive modeling would allow banks to uncover complex, organized, past fraud activities using both structured and unstructured data and thus assess creditworthiness.

Banks Reap the Benefits

· Reduction in the relative risk cost

· Hiking interest income from loans.

The ingredients of efficient risk analysis are ready- it’s for the banks to grab the opportunity.

SME Lending Risk- To Take or Not to Take?

There has been an emergence of small and medium-sized entrepreneurs, across the globe. SMEs account for 90% of the global businesses and drive 50% of employment. They contribute to 40% of the GDP pie in developing countries. Yet the major challenge posed to them is access to finance.

For such a population with no collateral or past credit score, fintech firms are partnering with alternate data sources like Point of Sales platforms and relying on location intelligence.

Location Extracts Insightful Demographic Information

· Business potential of the merchant’s area

· Affluence

· Delinquency

This enables the firms to assign a merchant score and make enhanced decisions about lending to those without collateral, thus bolstering the microcredit sector. Spatial insights reduce time and operational cost, both of which are essential for firms dealing with low-return loans.

Location Data- A Panacea for Risks

Fair lending, default risk analysis, and merchant scorecard call for geospatial analysis to take the lead by geocoding loan data. The formula for profitable lending, mitigating risks and growth lies in just one component that location helps uncover- merchant DNA.

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