Innovative Credit Scoring: Unlocking Financial Opportunities for MSMEs

In Indonesia, many micro, small, and medium enterprises (MSMEs) encounter challenges in accessing credit to grow their businesses. This is often due to their lack of collateral or limited credit history, which leads lenders to consider them high-risk and charge higher interest rates. This memo explores a novel approach to assessing MSME creditworthiness—Innovative Credit Scoring (ICS)—as a means to expand financial access.

ICS offers an alternative to traditional credit scoring by evaluating individuals who have never borrowed from banks. Instead of relying solely on past credit repayment data, ICS integrates diverse data sources—such as mobile phone usage, e-commerce transactions, social media activity, and household bill payments—using machine learning algorithms to generate credit scores.

This memo draws from rigorous evaluations, stakeholder interviews, and grey literature, to examine the opportunities and challenges of ICS in improving financial access for MSMEs in Indonesia. Additionally, it highlights key factors to consider when implementing ICS and presents essential research questions needed to advance the development of ICS.