Risk Profiling for Small Loans
To assess the risk levels and minimize sanctions of risky loans.
The client has been one of the Pioneers of “small ticket” loan product to address the market need of small loans. They recognize that these customers are not “high-risk” as perceived by conventional financiers, but still fall under the category of “unknown risk”. To assess this “unknown risk”, they rely on detailed & field-based verification rather than on formal financial documentation. Client wanted us to build an application to evaluate & rank loan sanction and improve decision making.
We had used the data generated from these field level interactions and created an application scoring model which helped in risk profiling and enhanced their decision making at a branch level. The model also aims at minimizing sanctions of less credit-worthy loan applications due to subjective evaluation of credit officers and client would be enabled with the information to charge varying interest rates for clients with varying application scores, which serve as a proxy for risk.
This model helped in reduction of field costs by evaluating the sanction probability early in the process. By arriving at a smaller pool of significant variables from the developed model, the field officer only needs to evaluate the applicants on these parameters thereby increasing the rate of efficiency.
Also, incorrect sanctions of more risky loan applications were minimized due to subjective evaluation of credit officers. A standardized rating system has been delivered to compare clients across various branches and cities.