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Financial Inclusion for the Unbanked Through Alternate Lending Methods

21 October 2020
Financial Inclusion for the Unbanked Through Alternate Lending Methods

The unbanked population has often struggled to find timely and reliable financial services from traditional financial institutions, but today FinTech companies are poised to fill that gap and ensure the access to credit as well as a variety of options for the underserved.

As is the nature of FinTech startups, they usually aim to find an unfulfilled space in the finance sector to provide a fresh target audience with their innovative solutions, and banking the unbanked is a great untapped market to start from.

The main concern with the underserved population usually lies in its lack of understanding of basic financial terms and processes too, such as not knowing enough about credit scores, repayment structures, or even how credit fundamentally works. In that regard, FinTech companies acknowledge the need for personalized guidance and are ready to deploy their sales and customer executives to act as advisors to the underserved. These advisors take matters in hand and walk the potential customers through managing their finances, educating them on critical processes to achieve this, and subsequently improving their basic income by finding them the proper plan and right financial product that caters to their needs.

Alternate lending platforms are rising in popularity nowadays for its simple qualification process, various funding options and faster approvals. Their main approach is to determine the best customized formula from his spending behavior, for example, to gauge his reliability and thus underwrite their credit risk and establish the most appropriate loan terms, pricing, and loan amount for prospects to be able to afford it and move forward with their plans. Alternate lending platforms are also known to collaborate with remittance players, volunteers, and payment banks to exploit their channels, digital or otherwise, to raise awareness and get the word out on their efforts.

Catering to the unbanked population has its risks, and this shows prominently where repayment is concerned. Repayment models are tricky to optimize, and many FinTech lending startups have found themselves unable to cope due to loan collecting issues. As such, FinTech lenders need to have differentiated loan collection models that take into account the size of loans and the risk factors involved in carrying out such a process. Small lending sizes are the least problematic, as executives can easily reach out to these customers and work out a repayment structure to get a win-win situation, but the larger the loan is, the more complicated it becomes, and therefore the more likely the company is to not get their money back in an acceptable timeframe, resulting in a losing loan.

As emerging FinTech companies - as well as traditional financial institutions that are modernizing their approaches and strategies – try to boost financial inclusion and deliver their services to the widest audience possible, the use of rising innovative technologies is increasing across the board. New and trending concepts like artificial intelligence, machine learning, robotics, and advanced algorithms are seeing more appeal due to their dedicated nature of finding the best possible outcomes for all customers, and the unbanked population is at the forefront of this notion because they need it the most. While progress is being made by alternate (and traditional) lending players around the world, it would be beneficial for them to remember that, ultimately, it is the simplest and most successful customer journey that will bring the best results. 

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