AI-Driven Credit Scoring for Informal SMES: Evidence from Pune's Industrial Clusters

The conventional credit score locks out the informal SMEs in the industrial belts of Pune such as Bhosari because of the unaudited financial statements. The AIS models provide an Alternative Data Scoring, which depends on non-conventional indicators such utility payments. The traditional scoring is beaten by AI-based models (XGBoost) by 22 percent in default risk prediction. AUC for the AI model reached 0.89. The loan disbursement rates in Pune went up by 35%.  The machine learning-based scoring is revolutionary to the business in Pune, as long as the bias of the algorithm is addressed.