Artificial intelligence to grant credits to the disadvantaged | Expert Network | future planet

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Artificial intelligence (AI) has managed to process and value the little data that the most vulnerable people can provide to justify their solvency and debt capacity; your activity on your mobile phone. Without any property, formal business or salary, low-income people hardly have access to credit that allows them to improve their small businesses.

Financial inclusion, affordable and easy access to secure financial products in underserved areas, is considered one of the keys to development for millions of people and makes it possible to achieve seven of the 17 Sustainable Development Goals. However, the World Bank estimates that 1.7 billion people still do not have a bank account.

A small credit in the hands of this group gives them the opportunity to buy a refrigerator to offer cold drinks, a sewing machine to increase their productivity or install drip irrigation that substantially increases the yield of their crops.

The microfinance industry, which has traditionally served this segment of the population, relies on physical visits to the business and references from neighbors to perform risk analysis on clients without any banking history. Analysis that requires travel to remote areas and a huge number of credit analysts traveling, which makes microfinance interest rates very high and a high percentage of the population is neglected.

A small credit in the hands of vulnerable people gives them the opportunity to buy a fridge to offer cold drinks or a sewing machine to increase productivity

With the increasing use of mobile phones in developing countries, microfinance service providers are turning to AI to revolutionize their business. With AI you do not depend on the visit of credit analysts, which allows loans to be granted much faster, to a greater number of people, in smaller amounts, with fewer personnel and at a lower cost for the client. All of them are highly relevant characteristics for a group that does not have many opportunities and for which being able to invest in growing their business is the only way to improve their lives.

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The burgeoning digital lending market surpassed $300 billion in 2020, with a high percentage being new smartphone users in emerging markets.

Every day, millions of customers from Kenya to the Philippines use innovative apps like Tala or Branch to access “instant loans”. For them, the phone is not a luxury item, but the only way to access endless services. These apps use AI to analyze data pulled from potential customers’ phones and make lending decisions without the need for bank officers or offices. A person’s social network, call history, and even phone top-ups become alternative data sources.

Tala makes loans of up to $500 using a model based on 250 points. Device data, such as operating system type and year, helps assess borrowing capacity. Bill payment history and certain behavioral data; how customers interacted with the app, how long they spend on each page, whether they actually read the terms and conditions, errors in typing biographical information, or what other apps they have on their phone all help assess the likelihood of a refund.

Branch makes credit granting decisions using call logs, SMS, Facebook friends, social media contact lists, photos, videos and other digital content.

AI is also helping to overcome the identification challenges of a population without any identity document or registration. Verification Approaches Know-Your-Customer staggered allow an easy form of identification through facial recognition.

AI is also helping to overcome the identification challenges of a population without any identity document or registration

However, despite the success achieved, it must be taken into account that a large proportion of this population is opening accounts or connecting to the Internet for the first time, literacy rates are very low and they also face possible language and technological barriers. Therefore, it is key to prevent predatory lending and ensure the sale of suitable products. With the ease of access and the absence of physical contact, clients could begin to over-indebt themselves. For this reason, it is being advocated to analyze the repayment capacity based on their savings capacity, for which mobile applications are emerging that help them record these savings.

Women in low-income countries are less likely to use the internet, own a mobile phone or use it for sophisticated tasks, which would again leave them outside the system

The issue of data protection based on individual consent for a group of these characteristics is also an issue to review.

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Likewise, we must be careful not to perpetuate certain dynamics of our society and exclude certain groups. Women in low-income countries are less likely to use the internet, own a mobile phone or use it for sophisticated tasks likely to generate a stream of clicks that could be leveraged to offer them credit, again leaving them out of the system .

AI constitutes a revolution for the microfinance industry, completely transforming its business model, and enabling the emergence of new companies while generating key opportunities for the most disadvantaged. We just have to make sure we do it in an inclusive and ethical way

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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