How beautifully a deviation has been handled in digital lending!
The case: Approval Limit on loan amounts. Not all branches of a FI are eligible to approve higher amounts of loan.
For instance, a credit score of 700 can make a borrower eligible for a loan (For ex: 5 Lakhs), but the score may be slightly insufficient for a higher amount of loan (For ex: 6 Lakhs) requested by the borrower.
Impact caused: The outcome of this case may be
1) Rejection of loan
2) Compromised interest rates
3) Request for submitting more documents.
4) Need a Senior Credit Risk manager to assess
In any case, manual intervention occurs, and chances of error and bias open.
Finally, it will increase the time taken for loan approval.
The borrower is unhappy!
Solution: With a rules-based workflow system, all these challenges can be automated
1) If the borrower requests are near 10-20% more on the deviation, then it still goes to a straight-through process
2) Based on the borrower’s request, the system itself can suggest a blended interest rate which will be a win-win for both the Lender and the Borrower. For ex: Loan amount – 5L – 15%; For 6L -15.5%
3) If the deviation demands 1) adding a co-borrower 2) a guarantor, and 3) need income documents from other family members, the System will automatically ask for this info while collecting the initial set of documents itself. Again, this will not be a surprise for a borrower.
4) Based on the loan amount/deviation, the System will automatically send a notification to the Senior Credit Risk manager to validate the case. Only after his approval, the case will go to the next step.
The borrower is happy here as the turnaround time is very less.
From making simple binary decisions to allowing complex calculations based on the expertise and experience of underwriters, decision rules allow lenders to follow a logical as well as a consistent approach to meet the usual as well as their unique needs.