Role of Artificial Intelligence in Credit Scoring for Financially Excluded Groups: An Indian Perspective

Abstract

The swift growth of financial technology (FinTech) in India has significantly transformed the credit distribution landscape, especially for marginalized and unbenefited communities. Traditional credit scoring methods depend largely on official credit histories, assets, and consistent income proof, which leaves out informal workers, low-income families, and new borrowers. Credit scoring models based on Artificial Intelligence (AI) have become a revolutionary approach, utilizing alternative data and machine learning methods to evaluate creditworthiness. This research explores the impact of AI on credit scoring for marginalized financial groups in India. Employing original survey data complemented by secondary information from regulatory and institutional entities, the study examines the impact of AI-powered credit evaluation on enhancing credit access and promoting financial inclusion. The results indicate that credit scoring using AI greatly improves access to credit, shortens processing duration, and enhances risk evaluation. Nonetheless, issues regarding data privacy, algorithmic bias, transparency, and regulatory oversight remain. The research ends with suggestions for the ethical and inclusive use of AI in India's financial framework.