New Tools

These less-discussed applications of fintech can transform microloan pricing and personal finance, leading to fair lending and wider inclusion.

- Bindu Ananth

Much of the focus of fintech vis-à-vis financial inclusion has been on payments and the ability to transfer money with relative ease using a mobile phone and an app such as the United Payment Interface (UPI)/Bharat Interface for Money (BHIM), or using the USSD protocol in case of feature phones. Here, I want to discuss two fintech applications that have received less attention, but which can be transformative for financial inclusion. These include riskbased pricing of microloans and personalised financial advice.

A central feature of finance, especially lending, is information asymmetry. The customer knows more about her credit worthiness than the lender. This is aggravated if the customer has no collateral to offer, which would otherwise serve as a ‘signal’ to the lender. Therefore, there is often a significant risk premium built into the pricing of the loan that buffers the profitability of the lender against credit losses. But we expect that over time, as lenders learn more about the credit worthiness of various customers, the same will be reflected in lower risk premiums.