Credit Appraisal and Risk Profiling

Credit Appraisal and Risk Profiling (CARP) is an essential component of loan processing, evaluating a borrower’s financial capability and assessing various personal factors affecting loan repayment. In the IF-P2P platform, CARP is an AI/ML-based automated system with minimal human intervention, analyzing around 100 data points to determine repayment capacity and financial behavior.

Methodology:

• CARP methodology is approved by the Board, and any changes are submitted for approval.
• Details obtained at the time of loan request include personal and financial profiles, loan details, and credit score.
• CARP algorithm considers relevant attributes with assigned weightages, producing financial behavior indicators used for creditworthiness determination.

Financial Behavior Indicators (Indicative):

• Average Gross Income
• Expenses as a percentage of Gross Income
• Ratio of loan instalments to Average Gross Income
• Utilization of credit lines
• Adherence to existing loans repayment schedule
• Number of cheques bounced and loan instalment defaults

Risk Score and Rating:

• Risk score is determined based on analysis.
• Mapped to risk rating (A = Low risk, F = Very high risk).
• Chargeable interest rate derived based on risk rating, loan type, size, and borrower category.

Automation and Data-Driven Approach:

• Entire process, from attribute analysis to risk score generation and loan offer creation, is fully automated and data-driven.
• Pre-verification of borrower attribute values is done to remove biases and discrimination in credit evaluation.
• CARP is scalable to incorporate additional parameters for refining algorithms for specific loans or borrower categories.

Back-Testing and Continuous Refinement:

• Core CARP algorithm is back-tested against a bank’s past loans database, found reasonably accurate.
• Actual loan repayment metrics feed back to CARP for continuous refinement.

Security Measures:

• CARP algorithm is fully secured with restricted access to prevent tampering with evaluation parameters and weightages.

Fair Evaluation:

• IF-P2P platform ensures no unfair distinction among borrowers; risk/credit score is based on detailed, scrutinized borrower information analyzed by the CARP algorithm.
• Applicable interest rates are derived based on borrower risk profiles.

In summary, CARP in the IF-P2P platform utilizes advanced technology, automation, and a data-driven approach to ensure fair and accurate credit evaluation, contributing to a transparent and secure lending process.