Invisibility is often seen as a superpower. But there is a huge drawback to being invisible. In this world, multiple communities regularly live under a cloak of invisibility, which deprives them of living meaningful lives with more resources and access to higher living standards.
These communities are also particularly deprived of access to financial resource or lending. Despite being a massive financial engine with an estimated global market size of $10 trillion, lending institutions have long overlooked individuals with certain characteristics, rendering them effectively invisible to traditional financial systems. As the lending market is projected to grow to nearly $15 trillion by the end of 2024, these blind spots remain significant, preventing millions from accessing the credit they need.
The importance of lending in the economy
Lending as a whole is extremely valuable to the health of the global economy. Why?
When they borrow money, individuals and businesses can invest in new projects, expand operations, or purchase goods and services. This increased spending creates jobs, stimulates economic growth, and drives innovation.
Lending also plays a crucial role in enabling people to access essential goods and services like housing, education, and healthcare. By providing the necessary financial resources, lending empowers individuals and businesses to achieve their goals and contribute to the overall prosperity of the economy.
So, who are those who are impacted the most when they remain ‘unseen.”
In our latest Credit Invisibility series, we will discuss four groups that have the potential for the most ROI on lending but suffer the most invisibility. In this blog, we will discuss marginalised groups.
Related read: Streamlining Credit Repayment effectively with Bureau
The credit invisible: Underprivileged communities
These “underprivileged communities” extend to low-income individuals, women with low incomes, members belonging to the scheduled caste and tribes, people with disabilities, and more.
Take Raju, a small farmer in eastern Odisha. His soil is rich, and his plan to switch from food crops to cash crops is promising. But there's a problem—he needs funds for high-end tools and quality seeds. Like millions of farmers, Raju's lack of formal banking history and traditional credit score means he's overlooked by commercial banks. This leaves him stuck, unable to tap into an opportunity that could lift his family and community.
For example:
- Raju probably does not have a bank account that has seen ‘healthy’ transactions over the years
- He does not have a ‘credit score’ that can indicate whether he will return the funds on time or not.
Additionally, the population in rural areas will always have lesser requirements in terms of finance than in the urban sector and this is not “attractive” per se for a commercial bank.
Researchers like (Karduck & Seibel, 2004; Basu & Srivastava, 2005) have shown extensively how the transaction cost for commercial banks is relatively high when they cater to rural areas and rural populations. Basu and Srivastava also found that 70% of rural marginal/farmers lacked access to bank accounts, and 87% lacked access to loans. This prevails despite researchers' consensus that financial inclusiveness is an essential pillar of sustainable growth.
Addressable market
- According to World Bank data, about 1.7 billion people globally remain unbanked or underbanked, with a significant portion in emerging markets like India, Southeast Asia, and Africa.
- The underbanked population in India alone is estimated at 190 million people in 2024, many of whom fall into underprivileged communities.
- Nearly 20% of women in rural India remain without access to a bank account!
Opportunity missed
John Caskey in his book 'Fringe Banking" explores how "how weak credit options force many working families into a disastrous cycle of short-term, high interest loans in order to sustain themselves between paychecks"
When underprivileged communities are excluded from the lending ecosystem, the impact ripples across the economy. Essential investments in housing, healthcare, and education are missed, stunting economic mobility.
In India, for instance, this credit invisibility costs the country an estimated ₹3.6 trillion in GDP growth each year. In India alone, this missed opportunity results in an estimated 1% loss in GDP growth annually, equivalent to ₹3.6 trillion ($43 billion USD) in 2024.
The Reserve Bank of India has now made significant changes to its Master Directions on Priority Sector lending in July 2024. The RBI aims to improve priority sector lending in India by addressing regional disparities in credit flow. By revising the weightage based on per capita PSL, the RBI incentivises greater lending in districts with lower credit flow while moderating it in regions with higher credit, ensuring more equitable credit distribution across the country.
How Bureau's Alternative Data suite can help bridge the gap
We need to re-imagine and reassess our approach to lending and credit assessment, expanding the boundaries of who "deserves" credit by using data to analyze character and intent, rather than solely focusing on bank balances.
Credit bureaus still have an extremely narrow lens when looking at credit worthiness. Not to mention, the data aggregated by these bureaus are fragmented and often do not provide accurate anlaysis of the payment intentions of an individual.
Alternative data here provides a much need 360 degree view of an individual's capacity and capability, not to mention their character. How?
- Utility and Telecom Data: Bureau’s alternative data suite can leverage utility, telecom, and rent payment histories to establish creditworthiness, offering lenders reliable indicators of financial responsibility.
- Behavioral Biometrics: Tracking digital behavior (like mobile app usage) can help financial institutions build risk profiles, identifying responsible borrowers who lack traditional credit histories.
- Inclusion through Financial Tech: By incorporating alternative data, lenders can design financial products tailored specifically for this group, reducing their reliance on traditional credit scores and offering access to low-risk, affordable loans.
By harnessing the power of alternative data, lenders can rewrite the rules of credit access. From utility payments to mobile app usage, these non-traditional indicators provide a clearer picture of financial responsibility.
With these insights, we can create lending products that are fair, accessible, and transformative—unlocking economic mobility for underprivileged communities worldwide. The future of inclusive finance lies not in ignoring the invisible but in making them seen.
Unlock financial inclusion with the help of Bureau's alternative data suit.
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