Harnessing the power of AI: how fintech is transforming SME loan decisions
By Ashish Nayyar
Small and medium enterprises (SME) consistently play a crucial role in driving the global economy and generating employment opportunities worldwide, yet they continue to face challenges when it comes to securing credit. Use of new technologies, including AI is transforming the way banks and fintechs provide finance to these businesses. These AI-driven solutions are streamlining SME loan decisions, making the borrowing process more efficient, faster, and accessible.
At the heart of AI-driven lending is data. Use of AI enables lenders to incorporate traditional as well as alternative data sources, such as social media activity, online reviews, and supplier transactions, into their lending assessments, leading to a more comprehensive representation of individual borrower credit situations. These unconventional datasets have been underutilized by traditional banks due to the limitations of their manual underwriting processes. AI tools enable lenders to analyze large datasets in real-time and extract valuable insights and patterns that are crucial for assessing credit risks. Thus, AI-driven fintech platforms adopt a more inclusive approach to extending credit to SMEs by evaluating unconventional metrics beyond the traditional credit score. This enables them to provide loans to underserved SMEs, thereby promoting financial inclusion and driving economic development.
Moreover, AI advancements enable the automation of the conventional manual underwriting procedure, substantially cutting down the time required to evaluate loan applications and disburse loans. Consequently, lenders gain the ability to handle a larger volume of applications without compromising on the quality of risk assessment. Such rapid decision-making is critical for SMEs, which often require timely access to capital to seize growth opportunities, fulfill orders, or address cash flow challenges. Furthermore, AI can be instrumental in helping lenders continuously monitor the financial health of borrowers throughout the loan term. This proactive strategy assists in early detection of potential risks and facilitates prompt interventions when needed. Therefore, by leveraging AI, lenders can swiftly analyze extensive datasets, expedite loan approval processes, and forecast potential risks and opportunities, ultimately facilitating more informed decision-making.
OakNorth was founded in September 2015 with one fundamental purpose: to serve and empower small-to-medium sized businesses (£1m-£100m turnover) – what we call the ‘Missing Middle’ – that were seeking to scale but were routinely underserved or overlooked by traditional banks. At OakNorth, we apply machine learning and data analysis to create unique models that provide us with a granular loan-level understanding of each borrower. By combining borrower-provided data with our vast repository of external data, we are able to add depth to point-in-time analysis and monitoring. This tech-first mindset has been key to our success to date. At OakNorth, we’re firm believers that successful commercial lending lies in leveraging AI-innovations to enhance humans, not replace them. This means using it to minimize time, effort, and risks at the back end, so that we have more opportunities to delight customers and forge genuine relationships at the front-end. For example, businesses that apply for a loan with us are often given the opportunity to meet our Credit Committee and discuss their borrowing needs directly with the decision-makers.
(The author is Ashish Nayyar, Co-head India, OakNorth, and the views expressed in this article are his own)
