How to Use alternative data to revive the lending process

Insights

The integration of alternative data into the lending process can broaden the scope of credit evaluation, based on a statistical approach, thereby benefiting the financial system holistically. This is achieved by converting financially excluded/limited-potential and prospective borrowers through the use of novel, yet sturdily scrutinized data input. The advancement in data analytics through the use of techniques, such as sentiment analysis, classification, and clustering, will enable the use of alternative data (combined with traditional data) to provide a profound understanding of borrowers and facilitate lenders to prudently identify and customize lending opportunities. The end result will bolster the financial intermediary function of lenders within the broader economy. This is much needed in the current environment, where the global financial system is plagued by unprecedented events such as the COVID-19 pandemic, emphasizing the need for financiers to look beyond extending credit to traditionally high-scoring creditworthy corporates.

Key Takeaways

• Lenders are increasingly investing in AI and machine learning technologies to integrate
alternative data into their credit analysis.
• Alternative data offers the foresight required for credit underwriting, thereby improving
lenders’ judgment.
• Account management has become more robust, as alternative data facilitates more real-time
futuristic changes to lending policies.
• Alternative data analytics have put the spotlight on customer behavioral insights in credit
underwriting and monitoring.

Authors

Ayoma Peiris

Associate Director, Commercial Lending

Ayoma is part of the Commercial Lending team at Acuity Knowledge Partners. She has over 10 years of experience, prominently in equity and credit research. She previously worked in the Projects and Transition team at Acuity Knowledge Partners. Prior to joining Acuity Knowledge Partners, she worked as Trader in a local investment bank. Ayoma holds an MBA and is a Fellow Member of ACCA (UK) and an Associate Member of CIMA (UK).

Wayomi Hemantha (CFA)

Delivery Manager, Commercial Lending

Wayomi has over 10 years of work experience including 7 years in Commercial Lending. Currently she is a Delivery Manager, overlooking a team of analysts responsible for carrying out credit reviews, risk raters, covenant validation and monitoring for the TMT sector of a leading European based bank. Prior to joining Acuity Knowledge Partners, she worked as a Relationship Manager in the Corporate Banking division of a leading a multinational bank. Wayomi is a CFA Charterholder and an Associate Member of the Chartered Institute of Management Accountants (UK). She also holds a Master’s degree (Distinction) from the University of West London and a Bachelor’s degree in Business Administration (Finance Special) from the University of Colombo

Chamathka Fonseka

Delivery Manager, Commercial Lending

Chamathka is part of the Commercial Lending team at Acuity Knowledge Partners. She is currently part of the Transport & Logistics sector, handling a team of analysts, executing credit-based workflows for a leading European based bank. Prior to Acuity Knowledge Partners, she was a Credit Analyst attached to the Corporate and Investment Bank Department of an US-based Global Investment Bank (local office).

She is an Associate Member of the Chartered Institute of Management Accountants (UK) an also a Member of the Association of Chartered Certified Accountants (UK), currently reading for a Master’s degree (Economics) in the University of Sri Jayawardenepura.

Taking the unconventional route: Using alternative data to revive the lending process