1. Startups

Encouraging Financial Inclusion Through Credit Scoring Innovation

Until now there are 19 companies that have been registered in the credit scoring cluster at OJK

Process credit scoring or creditworthiness assessment is an essential stage in applying for credit either by individuals or MSMEs. This process is carried out by checking and analyzing various supporting files, such as payslips, tax reports, proof of payment, bank statements, to field verification.

In general, checking credit scores can be done through BI Checking, which has now changed to Debtor Information (iDEB) or Financial Information Service Systems (SLIK). This data usually concerns the debtor's track record from a variety of previous transactions sourced from a database of banks or other financial institutions.

Armed with the information obtained, financial institutions can determine whether prospective customers can get the credit services they have or not. Even in more detail, credit service providers can also determine how much the maximum credit value will be given based on the ability of the prospective customer.

As digital innovation develops, organizers fintech Through the Innovative Credit Scoring (ICS) business model, it tries to provide a similar solution by utilizing alternative data sources that are not limited to bank accounts. For example, online shopping data, telecommunications data, as well as track records on social media can be alternative sources.

These various alternative data are used to improve the accuracy of credit assessment. This is because currently there are still quite a lot of Indonesian residents who need credit services but do not have proper credit data. The banking industry has also begun to openly utilize alternative data sources in order to expand its reach to segments of society unbankable and MSMEs.

Reach segment unbankable

World Bank data shows that 97,74 million people or 48% of the adult population in the country are categorized as unbanked. This number is the fourth largest in the world, below India, China and Pakistan. This figure shows that Indonesia still has enormous potential to develop.

One of the big agendas that the Government wants to achieve is to increase the public financial inclusion index by 90% in 2024. Attendance fintech Innovative Credit Scoring is currently expected to become enablers which facilitates the public, especially those who have not been touched by banking services, to obtain funding for their business activities.

In a joint interview DailySocial.id, Yohanes Arts Abimanyu as President Director and CEO of Pefindo Credit Bureau said, "Especially for people who unbankable, alternative scores be a solution in the case of unavailability of credit data or it can also be used to complement existing credit data-based scoring," he continued.

The methodology continues to evolve, for example, what is done Pefindo with XL Axiata in the IdTelcoScore product, they released an alternative assessment product using the XL Axiata user's cellular number to analyze the debtor's creditworthiness.

In Indonesia itself, the Financial Services Authority (OJK) has created a special cluster called Innovative Credit Scoring (ICS) as the organizer of Digital Financial Innovation (IKD). As of September 2022, there are already 19 companies listed in the cluster credit scoring.

PT Finantier Teknologi Indonesia was the last to receive this license in 2021. This platform provides a solution open finance with infrastructure API based technology that fintech can use to deliver inclusive financial services. The product is credit scoring that can be used by digital financial institutions to support loan services by ensuring the eligibility of prospective customers.

Other players who were registered earlier CredoLab operate by reading data on smartphone to generate user behavior scores. Then the data is processed to estimate the possibility of default. Metadata on the device is accessed anonymously, while ensuring privacy.

One of the new players engaged in this sector is SkorLife. Using a slightly different approach, the company is in a unique position as it builds what stakeholders call a “credit builder” in the consumer credit space.

They see that in Indonesia, most banks and other financial institutions still rely on "income eligibility" rather than creditworthiness to decide whether they can offer credit to borrowers or not.

To combat this, SkorLife aims to give consumers back control by getting them to take a more active role in building and maintaining their credit scores.

SkorLife CEO, Ongki Kurniawan also revealed, “Through our services, prospective creditors will be able to build and enhance their credit profiles with features such as personalized tips and advice. We will also help bring in more NTC (New to Credit) users,"

Support business fintech

Regarding the use of credit scoring services, or P2P lending is one of a kind fintech who will intensively utilize this service. In their work process, they need a quick feasibility assessment process to provide feedback as soon as possible after the user submits.

Not so long ago, service microfinance marketplace Amartha launched its newest initiative Ascore.ai, a credit scoring alternative built on over 1 million  Amartha's ultra micro entrepreneur partner for the last seven years. This solution targets the institutional and individual markets.

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In addition there is also AIForesee which was recently introduced as a new subsidiary of Investree. The company provides an alternative credit rating platform to support productive lending to MSMEs. This platform operates using Artificial Intelligence (AI) technology and alternative data owned by the ecosystem.

Apart from being able to be used by MSMEs to get access to credit, and P2P lending to support business financing, innovative credit scoring can also be used for E-commerce in order to encourage digitalization of MSMEs and financial services to provide insurance protection, as well as access for finance companies.

One example is Tokoscore which is already affiliated with the Tokopedia platform. Currently, it is trying to help answer the problems faced by lenders. Especially, when they received credit applications from three community groups unbankable, but it is difficult to assess credit risk because they cannot find their historical data in credit bureaus.

The company has just launched its newest product, namely "Income Prediction", which allows predicting the value of income from potential borrowers to help strategic partners in the financial industry, such as banks or fintech, by assessing the capacities of potential borrowers. In addition there are "Fraud Flags" which provide information if the prospective borrower has suspicious activity or behavior on the platform e-commerce.

Regarding data security issues, organizers fintech innovative credit scoring (Fintech ICS) in 2021 launched a code of conduct compiled by the Indonesian Fintech Association (AFTECH) and the Working Group (Pokja). This code of ethics is expected to encourage organizers to be more responsible, increase consumer confidence, and contribute to financial inclusion in Indonesia.

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