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Putting the personal back into loans

Combination of technology, innovation and big data is ensuring that lenders serve as a friend in need in helping customers achieve their aspirations

Gulf News

By Suvo Sarkar, Special to Gulf News

A personal loan is exactly that. It is money that customers look to use for a variety of needs that is specific to their circumstances. It is sometimes for important life events such as your son’s wedding and to help make sure that it a grand occasion. It could be to fund college fees at your daughter’s dream university or to invest in a well-earned family holiday at an exotic beach resort without having to break your nest egg. Or, God forbid, it could be to cater for a medical emergency for your parents. Used wisely and within reasonable thresholds, personal loans allow us to stretch our financial wings just that much farther in reaching our life goals.

Just till a few years back, availing a personal loan meant submitting reams of documents at your local bank branch, meeting the bank manager and obtaining countless approvals before the funds are credited. No longer. Keeping the consumer at centre stage, a combination of factors including digitisation, product innovation, data analytics and emergence of alternative lending platforms mean that more customers today have easier access to this important financial service, as and when they need it.

AI meets good intentions

Technology is making it possible for lenders to provide quick and personalised decisions on loan applications. Using patterns of the applicant’s behaviour — not just limited to banking — such as mobile usage, shopping records and social media activity, algorithms using machine learning can predict how regular a potential borrower will be in making repayments towards the loan.

Singapore-based Lenddo uses non-traditional information like social media activity, web browsing behaviour, geo-location and other smartphone data to arrive at a score that lenders can use in credit decisioning, especially for first-time borrowers. ZestFinance is using Baidu search and location data to develop credit scores for Chinese customers, many of who don’t use conventional banking products. SoFi in USA has funded over 30 billion dollars with a unique approach to lending — looking behind just credit scores to consider factors like career and education. These, along with credit bureau scores and home-grown scoring models, are helping lenders make better and quicker approval and pricing decisions for borrowers.

Paperless processing

Loan applications are now increasingly becoming paperless, whether applying at a bank branch or through a sales officer. Emirates NBD’s newly introduced tablet-based application now allows customers to apply for a personal loan completely digitally, not needing to provide or sign a single piece of paper, free from what used to be called “the paperwork, sir”. Video banking today helps customers to apply for a loan round the clock from the comfort of their home while being assisted by a remote banker. Banks are also able to provide instant loan approvals by integrating back-end processes with sophisticated decision management systems, as well as make available tailored proposals.

Market place lending

Market place or peer-to-peer lending is an innovative mechanism that allows customers to lend and borrow from each other, thereby disintermediating banks, and is an area that is growing fast. Platforms such as LendingClub or Prosper match borrowers with potential lenders and support the latter with credit scoring and pricing recommendations to enable the transaction. Closer home in UAE, we have Beehive, a peer-to-peer lending platform for businesses connecting them with investors who can support their growth.

Other platforms target specific needs such as student loans or payday loans. Micro-finance is a growing area in developing markets that focuses on financial inclusion and making credit accessible to more segments of the society. In addition, banks today also provide interesting product variants such as variable interest rates, or rising instalment loans to help the borrower choose the option best suited for their situation.

Borrow, but wisely

As personal loans become more readily accessible to customers, the onus is coming back to customers to make sure that they borrow sensibly and only what is needed. Rising interest rates can start to place added burden on debt servicing. Regulations now institute caps on how much monthly debt burden can be placed on customers or how many multiples of salary can be lent. Many banks, including mine, now carry out financial literacy programmes educating customers on the importance of financial prudence. The buck is increasingly stopping with the customer who has to make sure that he or she is borrowing wisely, enabling one to lead a richer and more fulfilling life, without it becoming a burden.

Suvo Sarkar is the senior executive vice-president & group head of Retail Banking & Wealth Management at Emirates NBD.

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