Arohan Financial Services Limited is a prominent Non-Banking Financial Company-Microfinance Institution (NBFC-MFI). Arohan Financial Services Limited has made a major milestone in the microfinance industry with the introduction of a special Risk-Based Pricing model. The proprietary Credit Scoring model drives this strategic move by the company.
It is meant to introduce a new dimension of scientific accuracy in micro-lending. Through its move to a more dynamic pricing system that takes into consideration the risk profile of particular borrowers, Arohan is establishing a new culture of financial inclusion and operational efficiency in the Indian credit market.
The establishment of the Risk-Based Pricing framework is a direct answer to the changing regulatory landscape and the growing maturity of the microfinance sector. Historically, the microfinance institutions were subject to strict margin limits and standard interest rates.
Under the new regulatory framework of microfinance loans that requires the Reserve Bank of India to promote transparency and price these loans based on risk, Arohan has been leading the way in adopting these principles. The framework enables the company to provide differentiated interest rates based on the creditworthiness of the customer, which makes the pricing fair, transparent, and reflective of the underlying risk.
The core of this new pricing strategy is the credit acquisition scorecard of the sector, which is the best of its kind in Arohan, called NIRNAY. This advanced model employs advanced data analytics and statistical software to consider multiple parameters of financial behavior and the stability of a borrower. The model provides an overall credit score to each applicant by running a large volume of data and using visual analytics tools.
This objective methodology eliminates the subjective evaluation and offers a rationale-based credit decision-making. The NIRNAY model facilitates not only risk mitigation but also makes the process of loan approval more efficient and effective on the part of the lender and the borrower.
Risk-based pricing implementation has several strategic benefits to Arohan Financial Services. It allows the company to maximize its risk-taking by supporting all the lending decisions with concrete statistics and rationality. This is especially important in the microfinance sector, where borrowers are usually at the mercy of economic changes.
The structure assists in attracting and maintaining high-quality borrowers by providing them with good rates that they see as acknowledgment of their strict repayment track record. Arohan has intensified its risk management unit in support of these initiatives.
Python, R, and Tableau are some of the new advanced technologies that the company currently uses to process and model large volumes of data and make predictions. This technological stack strengthens the role of Arohan as a digitally-based platform that has the capability to provide scalable financial services without losing a robust hold on the quality of assets.
The new framework of Arohan is strongly based on the concept of customer protection and transparency. As required by the regulations, the company will ensure that all elements of pricing, such as the cost of funds and the risk premiums, are properly documented and disclosed to the borrowers.
The company has empowered its customers with the information necessary to make informed financial decisions by offering them a standardized factsheet. This transparency promise was also a major reason. The company could negotiate through intricate regulatory environments and retain its reputation as a well-managed MFI.
The risk-based approach helps in enhancing the wider objective of financial inclusion. Through proper risk pricing, Arohan can lend to a variety of customer groups, such as those in distant rural markets, without jeopardizing the financial health of the organization. This moderate stance is critical to ensuring the long-term growth and changing the lives of millions of people throughout the states in which Arohan does business.
The introduction of a Risk-Based Pricing platform based on its own Credit Scoring model is a revolutionary step towards Arohan Financial Services. With its ongoing utilization of the data-information stack and optimization of its risk policies, Arohan is in a strong position to realize the vision of becoming one of the leading players in the financial inclusion field.
This program highlights that the company is committed to applying innovation as a social impact mechanism to enable access, affordability, and smart management of credit to the bottom of the pyramid.