Over the past two decades credit scoring has transformed how lenders analyse credit applicants and make lending decisions. With the use of credit scoring suites and automated decisioning tools lenders have not only completely eradicated the manual task associated with application analysis but have also reached a pinnacle in decision accuracy and consistency. In the past year alone technological advancements have resulted in a generation of credit scoring tools that have changed the course of lending history and with it the future of microfinance.
Perhaps the most significant reason for credit scoring’s dramatic progression lies with the significant advances to the quantity and quality of credit bureau data. Forming the foundation of credit scoring, comprehensive updated databases have allowed for the accuracy of scoring to reach unparalleled heights. By combining CPA and NLR payment data with enquiries, collections, administration orders, debt restructuring, public adverse data and most recently business credit data credit providers can be confident of the predictive nature of scoring tools.
With the firm foundation of comprehensive credit bureau data, credit scoring has been taken to a new level which has allowed for its application to be expanded across the entire credit life cycle. While originally scoring tools were used to assess credit risk at the inception of a credit agreement – advances in the application of credit risk models have made them a key tool in the management of risk across the entire credit life-cycle. By making use of behavioural scoring, such as Compuscan’s CompuScore B, credit providers can monitor when changes to a borrower’s circumstances affect their risk profile thus allowing them to predict ongoing default risk.
Furthermore, collections management has also been drastically affected by advances in the field of credit scoring. By implementing collections scoring, such as CompuScore C credit providers can predict the probability of receiving payment on overdue accounts. This assists credit providers to expedite the collections process and be alerted to high risk borrowers so that they can act accordingly.
In addition to the above technological advancements, automated decisioning tools such as Codix which integrate with scoring modules to provide an automated credit decision have also dramatically changed the face of the lending landscape. By taking the specific rules for each loan product into account, including an individual’s credit bureau score, Codix can instantly and consistently offer a recommendation as to whether to accept or decline an applicant. Perhaps most intriguing is the most recent development in this field which has had a dramatic impact on microfinance lending and which is sure to change the landscape for smaller or emerging unsecured loan providers.
While implementing automated decision making tools has become an integrated and essential aspect of credit granting for larger more established credit providers over the past few years, due to cost issues the smaller unsecured loan provider has not been able to enjoy the same benefits. This has all changed with the launch of Compuscan’s latest product offering, Codix Lite. Codix Lite, the pinnacle of advancement in the field of credit scoring, offers an affordable credit scoring solution for smaller unsecured loan providers. As it is specifically designed to cater to the smaller organisation it is not only cost effective but also quick to set up and put into production. Guaranteed to revolutionise credit granting in the micro-lending sphere, emerging organisations can now experience the same consistent and accurate decisions once only experienced by the larger more established organisation.
In the past 20 years credit scoring has come a long way and as such has revolutionised the lending landscape. However, the largest strides have most certainly taken place within the past 5 years with automated decision making tools for micro-lending, such as Codix Lite, perhaps being the most significant of all. With credit risk now being higher up on the agenda of senior management in micro-finance than ever before these advancements have altered the entire face of credit granting. Only time will tell what direction technological advancements will take and how it will affect the future of microlending.