How Alternative Credit Scoring Is Expanding Financial Access in India

For decades, access to credit in India has depended on a simple three-digit number, popularly known as your credit score. But what happens when millions of people don’t have enough formal credit history to be scored? This has been the challenge for India’s vast population of new-to-credit (NTC) customers, especially those in rural areas, gig workers, and micro-entrepreneurs. Today, thanks to alternative credit scoring models, this reality is changing.

Traditional Credit Scoring: The Limitations

Credit bureaus like CIBIL, Experian, and Equifax have long formed the backbone of lending decisions. However, they rely heavily on formal repayment history leaving out:

• First-time borrowers
• Informal sector workers
• Micro, small, and medium enterprises (MSMEs)

This exclusion has created a credit gap that limits financial inclusion.

Innovations in Credit Scoring

New-age models now use alternative data sources to assess creditworthiness:

• Mobile phone usage: Call frequency, prepaid recharge behaviour, payment of mobile bills.
• Digital footprints: Utility bill payments, e-commerce activity, UPI transactions.
• Psychometrics: Personality-based questionnaires that indicate repayment behaviour.
• Social behaviour: Peer networks and community reputation.

Benefits of Alternative Credit Scoring

• Brings millions of NTC customers into the fold.
• Helps MSMEs access working capital.
• Improves risk assessment for lenders.
• Enables personalised loan products.

Challenges and Risks

• Data privacy concerns: who owns and uses this data?
• Bias in algorithms: risk of discrimination if data isn’t handled properly.
• Regulatory clarity: India needs frameworks around fair usage of non-traditional data.

The Future of Credit Access in India

The RBI is encouraging experimentation through regulatory sandboxes. Fintechs are partnering with banks to test models that combine traditional + alternative scores for a 360-degree view of borrowers. With AI, big data, and open banking, credit access in India could become faster, fairer, and more inclusive.

Conclusion

Credit scoring innovations are unlocking opportunities for millions of Indians. For banks and lenders, the future isn’t about replacing traditional scores, it’s about augmenting them with richer, alternative data to fuel financial inclusion.