Inclusion and financial transparency are complementary concepts that go beyond the being credit worthy. One of the biggest obstacles to financial inclusion is the way in which people are evaluated to have access to credit. A strong economy needs more than technological innovation, capital investment and a solid monetary policy; it needs inclusion to boost and strengthen financial transparency.
Financial inclusion is full of challenges for all the involved parties. Financial institutions need to assess the risks that each new member represents: from delinquency of payments to financial crimes. Financial transparency makes this assessment easier and provides a broader view of creditworthiness and financial risks.
Have credit to get credit
The paradox of credit is that you must have a credit history to have access to credit. As if that were not enough, not being part of the banked population makes you unworthy of trust in the eyes of banking institutions. Financial institutions consider that people with no credit history are more than a risk of uncollected debts; they are also subjects with greater possibility of committing financial crimes. Ironically, financial exclusion actually increases the risk of financial crime.
A new approach
A system that demands traditional credit history to grant access to credit, fundamentally perpetuates financial exclusion. That’s why some FinTech companies are changing the way to evaluate the credit subjects, considering not only previous credits, but alternative factors that are equally valid to evaluate the ability to make regular and reliable payments. These include if the person has a stable address and if he pays his bills on time, if they have a steady job and even their educational level. They are also relevant factors if they have their own business and a established telephone line. Have they processed the necessary licenses and permits to operate? What assets do they have?
Financial transparency transcends banking institutions; there is a lot of additional information available to assess the creditworthiness of people, whether or not they are banked. Using financial transparency to look at people under alternative parameters and assess their financial capabilities, helps to leave behind the concepts of banked and unbanked and brings us closer to financial inclusion.
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