Every 1st March, the world observes Zero Discrimination Day — a reminder of the right of everyone to live a full and productive life. While progress has been made, one area that still needs attention is access to credit. Financial discrimination persists, affecting who gets loans and on what terms. Increasing awareness and sensitivity are helping, and this is gradually opening up better opportunities in the financial sector, including personal and home loans.
India’s loan market is expanding rapidly. Between February 2017 and February 2018, personal loans and related assets grew by around 20.4%. Over similar periods, personal loan and credit card debt levels rose significantly. Looking back further, from 2014 to 2018 the compounded annual growth rate for consumer credit climbed markedly.
However, more credit in the market does not automatically mean equitable access. A persistent gap exists between the number of applicants and those who receive approvals. That gap is not explained solely by risk management. Some borrowers are denied not because they pose intolerable credit risk but because of discrimination.
What Discrimination Do Borrowers Of India Face?
Research and industry reports point to several sources of bias: prejudice, inaccurate stereotypes, and incentive structures that skew decisions. Common examples include:
- Lower acceptance rates for applicants from certain locations.
- Rejections tied to the nature of an applicant’s business, even when the business is viable.
- Decisions influenced by subjective human impressions — from mannerisms to names — that should be irrelevant to creditworthiness.
Banks operate as businesses and their lending policies are shaped by the need to protect the institution’s financial stability. Historical data showing higher defaults from particular areas or industries can translate into blanket higher rejection rates. When humans participate in underwriting, implicit bias can affect how thoroughly files are scrutinized. That extra scrutiny may produce “red flags” more often for certain applicants, which can justify rejections even when the underlying risk is not materially higher.
If a borrower believes they were discriminated against, legal action is possible, but often impractical: litigation is lengthy, costly, and exhausting. Many affected individuals accept the outcome and move on.
While banks are regulated by the Reserve Bank of India and other authorities, they retain the legal right to accept or reject loan applications. Regulations help limit abuse and preserve stability, but they do not guarantee that lending decisions are always free of bias. Personal prejudice or discriminatory judgments based on status or profession can and do influence loan approvals.
Consider home loans: a lender’s lack of confidence in an applicant — for any reason — can lead to rejection. Banks prioritize predictable cash flows and the ability to meet depositor withdrawals; perceived threats to those priorities can become grounds for denial. Although lenders generally do not intend to reject creditworthy borrowers, policy-driven and unconscious discrimination can affect outcomes.
Despite these issues, lending remains a core revenue source for banks, and most lenders do not seek to deny viable applicants intentionally. Still, inconsistent practices and hidden biases mean some borrowers face unequal treatment.
How Fintech Platforms Are Coming To The Rescue
Fintech platforms are emerging as important alternatives to traditional banks. They often operate with different constraints and can address gaps left by conventional lenders. Designed to correct shortcomings in the classic lending model, fintech firms aim to be both sustainable businesses and more inclusive lenders.
Different fintech lenders use varied approaches:
- They are free to design lending structures that suit their customers and risk models, within legal boundaries.
- This flexibility enables them to use advanced data analytics and automated underwriting to better estimate repayment ability and customize repayment options.
Compared with banks, many fintech lenders offer clear advantages:
- Simplified documentation and faster turnaround, reducing time and administrative burden for applicants.
- Automated, data-driven underwriting limits human intervention and therefore the scope for individual bias. Much of the verification is digital and happens during account setup.
- A customer-focused process that aims to make borrowing straightforward, managing much of the workflow on behalf of the borrower.
- Strict verification remains essential: falsified information leads to rejection, as lenders protect themselves from fraud.
Fintech adoption in India has grown rapidly. The adoption rate rose from about 52% in 2017 to roughly 87% by 2019, well above the global average. The sector has expanded alongside the rise of digital payments and mobile wallets, with market size estimates and projected growth rates pointing to a strong trajectory. These trends support wider awareness of digital financial services and may further drive equitable access to credit.
As demand for loans grows, driven in part by inflation and the declining purchasing power of money, ensuring that lending systems are fair and unbiased becomes increasingly important.
Many players in the market are committed to building discrimination-free lending systems. With steady improvements and technology-driven underwriting, the financial industry is moving closer to more equitable access to credit.