Fintech for the Poor: Financial Intermediation Without Discrimination*

Tantri, P L (2020) Fintech for the Poor: Financial Intermediation Without Discrimination*. Review of Finance, 25 (2). pp. 561-593. ISSN 1572-3097

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I ask whether machine learning (ML) algorithms improve the efficiency in lending without compromising on equity in a credit environment where soft information dominates. I obtain loan application-level data from an Indian bank. To overcome the problem of the selective labels, I exploit the incentive-driven within officer difference in leniency within a calendar month. I find that the ML algorithm can lend 60 more at loan officers’ delinquency rate or achieve a 33 lower delinquency rate at loan officers’ approval rate. The efficiency is maintained even when the algorithm is explicitly prevented from discriminating against disadvantaged social classes.

Item Type: Article
Subjects: Finance
Date Deposited: 17 May 2021 13:14
Last Modified: 17 May 2021 13:14

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