How Beneficial Are AI-Based Loan Apps In India?

A lot of AI-based lending apps have emerged in the country with the increased use of smartphones. Moreover, due to the government’s initiative to encourage digitisation of the banking sector, more fintech firms are hurrying to fill the gap in access to those loans.

The emergence of these apps has brought about a sea of positive changes in the financial sector. For instance, these AI-based loan apps have made loan management simpler with the help of sophisticated tools. However quick and lenient these apps may seem, there are still infrequent issues like high lending rates, inadequate security of customer data, and short repayment terms. 

AI-based lending platforms were created to provide an independent credit marketplace with customised sectoring to benefit MSMEs across the country. However, these apps are falling short mainly due to two reasons:

• Every month, nearly a quarter of loan applicants come with no formal credit history, as a report from TransUnion CIBIL. AI based lending apps create a credit score for those new customers through their social media usage, calling patterns, number of contacts, and data from digital payments. 

The issue with this system is that there are still a handful of people that do not use social media. Therefore, they may face disadvantage from the introduction of such technology to determine creditworthiness.

• Authorised lending apps are required to capture data with the consent of the customer. Now, many apps tend to breach this advisory by engaging in arbitrary practices that may harm the customers. But, the Central bank has stated that it will introduce a regulatory framework to support technological innovations while maintaining privacy and customer protection. 

The mushrooming AI based loan apps have significantly led to the digitisation of financial transactions. The availability of truckloads of data and ease of applying for loans has led to an ocean of opportunities for lending institutions and borrowers alike. Moreover, it is now simpler and easier to get insights from this data and ease the loan management system using such analytical tools. 

Let us dive in further to find out the positive aspects of these AI-based loan apps:

• Helps Lending Institutions In Knowing Their Clients Better

Customers in need of financial assistance need not wait in queues to seek help from an agent. AI-powered chatbots can provide relevant information and prompt service to customers in need.

Further, with the use of data, these apps can observe customer behaviour patterns and tailor the loans as per their requirements. This helps in targeting a large customer base and also increases profitability.

• Provides Preliminary Screening

AI-based loan apps screen loan applications based on various credit models. This helps in minimising the immense amount of effort needed in effective loan management. In addition, the lending organisation saves a lot of time as AI takes over all operational tasks. Hence, the team can now concentrate on more critical aspects involved with loan processing.

• Determines An Applicant’s Creditworthiness

With the introduction of AI into the financial sector, metadata analysis gives a proper insight into customer behaviour and spending patterns. This provides an estimate of the person’s ability to repay the loan in time. 

The turnaround time in processing these loans has also reduced due to such AI-backed tools. 

• Maps The Lender’s Profile With The Borrower’s Necessities

Various AI-based loan apps like KredX help in mapping the lender’s profile according to the necessities of borrowers. This eliminates the need of submitting a detailed application process by prospective borrowers. With the help of such AI tools, the entire loan procedure accelerates and leads to easy disbursal. 

Future Trends For AI In Financial Lending – Ethical Or Unethical? 

Indeed, the use of machine learning in AI-based loan apps will raise some legal, privacy, and ethical concerns. For example, certain individuals may not feel comfortable sharing sensitive information about their lives. Also, there are chances of malicious hackers breaching the data that these apps store in them. 

The use of credit value score further elevates to discrimination against certain groups. For instance, evaluation of credit scores based on the number of phone contacts would more likely find men creditworthy than women. This is because women have lesser social mobility.

Even with these staunch concerns, the use of machine learning to process data and determine customers’ creditworthiness is going to boom in the near future. There are a huge number of loan seekers with no credit history who would benefit a lot from these apps like MANDII. 

Bottom Line

With the emergence of various smart AI-based loan apps, lenders feel less burdened as credit monitoring, and background checks are entirely digitalised. The borrower also enjoys the benefit of an easy application process with quick disbursal. Hence, with such advantages as streamlined application procedures and cost reduction, artificial intelligence in finance is destined to lead to better lending outcomes.