Overview of Borrower Risk Profiling Methodology
RBI’s P2P regulation mandates that every borrower on the Rang De P2P platform should have their risk profiling done. The grade/rating should be put up on the platform for social investors to review and evaluate. The idea is to help social investors in the decision making process. This note will give an overview of the scoring methodology used to rate borrowers on www.rangde.in.
Given that all borrowers on the Rang De P2P platform belong to underserved communities, the borrower risk profiling methodology used by the platform has factored the following parameters while arriving at a particular borrower’s grading:
- Socio-economic profile
- Loan product
- Partner rating
- Credit history (if any, through formal channels only)
Data for the first two parameters are captured through the loan application process. Partner rating is based on Rang De’s internal assessment of our Impact Partners and credit history is data collated from Credit Information Companies like CIBIL.
Specific data points for each parameter mentioned above are evaluated and scores are assigned to the same. The overall score for each broad parameter is assigned a weight and the total weighted score is graded on a scale of 10 and published on the borrower’s profile as the final score in terms of stars.
Following is a key to the borrower credit risk grading displayed on the Rang De website:
|Risk Profiling Score||71 - 100%||31 - 70%||0 - 30%|
|Rang De Credit Rating|
|What it means||Low Risk||Medium Risk||High Risk|
While a higher score would indicate better socio-economic condition of the borrower thereby implying lesser risk, this rating is merely indicative. It should not be construed as a guarantee of repayments.
Another perspective that social investors should consider while evaluating a borrower’s credit rating is that borrowers with a lesser score may also be the more deprived ones and hence more deserving. As a result the social impact of a loan to such borrowers could be higher.