DigiAlly reimagined SME Digital Lending for a new-age Fintech client

Summary

DigiAlly is excited to announce that it has successfully completed an assignment with a new generation regional fintech player which enables digital lending to SMEs. The client is committed to simplify the lending process for small businesses that face constant hurdles to growth due to lack of access to finance.?

Our client, a new age fintech, with help of DigiAlly, has embraced ‘disruptive’ approach by challenging traditional credit process. Reimagined credit approval process mandated solving of key problems including verifying legitimacy of the SMEs, assessing real intent of SMEs to payback and predicting their true potential all arising due to lack of critical data.?

DigiAlly’s assignment with this leading Fintech leveraged alternative data sources to create personas for SMEs that led to identifying the trustworthiness of any SME on 2 fronts, one if the SME is worth giving a loan and second – how much loan they deserve.?

Our proprietary Trust score acted as a benchmark to define SME performance, delivered a predictive model with high accuracy on both fronts, qualification of loan and eligibility of size of the loan. We were able to predict the future performance of the SME with high accuracy. DigiAlly successfully delivered the recommendations and a detailed SME report that will be adapted within existing credit process.

Client Context

Our client is one of the largest working capital lending platforms, catering to the working capital requirements of large, mid, and emerging corporates, MSMEs, and financial institutions. With an outstanding year-on-year growth, it has managed to serve a good proportion of small business borrowers and financial institutions. It has also been recognized as an emerging startup by many reputed organizations because of its exemplary performance in supply chain capital solutions, thus proving its mettle. With extensible solutions, it has efficiently handled thousands of suppliers and distributors and enabled its customers to leverage the received liquidity to expand their operations, shorten the working capital cycles and achieve further growth. Given the facilitated on-demand liquidity by the client, its customers can have to deal with longer payment cycles, which is one of the core challenges.

Problem Statement

The world around has changed dramatically in last 50 years from the no internet to all digital, yet the credit process has remained dependent on financial reports, bank statements and in-person meetings. Another challenge is that SME are treated the same way as the corporates on the lending parameters. This is similar to giving an adult medicine to a child. The whole lending process is strenuous for banks which are trying to scale their SME businesses and mandated by priority sector lending.?

DigiAlly’s client primarily dealt with the issues such as ascertaining the legitimacy of SMEs and subsequently evaluating creditworthiness. The process hugely relied on financial data such as bank statements and tax returns and basic form of physical verification. Also existing credit evaluation processes lacked data beyond the elementary financial data; situation worsened by heterogeneous business models of SMEs. In spite of all due diligence, client might face increased operational risk and exposure to reputational risk as well. While the risk needs to be balanced, lenders loose on several potential customers due to asymmetry of data. Our client, being an advocate of innovative digital solutions, was keen to transform the way in which the overall evaluation of SMEs is done and accelerate the process of lending.

Solution by DigiAlly

In order to accelerate the lending process and improve decision making, the client sought expertise of DigiAlly to get access to new age SME evaluation. Understanding the client’s need to have a holistic SME assessment approach DigiAlly utilized its multistage evaluation process and deep learning scoring model powered by alternative data to evaluate existing customers to showcase how well it complements their existing lending journey. The evaluation process starts with business verification step crucial to eliminate fraud, companies with dubious backgrounds, questionable records of directors etc. and establish the legitimacy of the business being evaluated. Once a business is verified for its legitimacy, a trust score is generated for all the SME customers which primarily quantify the intent of borrower to pay. Through trust score customers were further graded into four categories meticulously segregated to represent the riskiness, between Bronze to Platinum).? In addition to the business verification and trust score DigiAlly also evaluated those SME businesses on qualitative aspects perfectly mapped against their respective industry.?

Imapct and Road Ahead

The impact of any analysis and evaluation can only be determined by putting it to the test with real life situations, DigiAlly team was keen to understand on how SMEs has performed vis-à-vis the recommendation provided by DigiAlly. The results not only met the client expectation with 95 % of decisions made by client with our recommendation and none of the the recommended SMEs facing any defaults. Over last 12-month period – All achieved with digitization and ~50 % reduction the cycle time to evaluate and offer loan to an SME, truly a leap towards embedded SME intelligence of future.?

Engagement with DigiAlly proved a very crucial exercise to prove the hypothesis that loan asset performance not only relative to a credit score but goes way beyond that to the real intent of paying back. Using DigiAlly’s Deep Learning model we have quantified the intent of a borrower to pay back and built the trust a lender can have in these underserved SMEs. With better representation of these SMEs DigiAlly has enabled the underserved segment to get access to capital and grow to their true potential while providing levers to financial institutions to grow their SME loan book in a sustainable way. Moving forward, we will continue to work as a plugin with the firm making the credit process more effective, cheaper and quicker for the greater good.

Using our model, we have quantified the trust a lender can have in these underserved SMEs to truly democratize their access to finance. With trust score from DigiAlly, SMEs can grow with confidence and present digital identity to financial institutions interested in growing SME loan-book in a sustainable way.

#DigiAlly #SMELending #TrustLending #Transformingcredit #digitallending #MSME #credibilityscore #creditscore