AI-Driven Credit Scoring for Rural and Semi-Urban MSMEs: A Step Towards Innovation @ 2047

Abstract

Credit scoring is the backbone of lending decisions; it plays a pivotal role in helping financial institutions assess risk and determine loan eligibility. However, the conventional credit scoring system is heavily dependent on past financial records, the presence of collateral assets, and rigid risk indicators. Such outdated approaches fall short of capturing the actual financial dynamics of Micro, Small, and Medium Enterprises (MSMEs), especially in rural and semi-urban areas, where informal business practices, irregular income flows, and limited credit histories prevail. As a result, a substantial portion of MSMEs continues to be marginalized from formal credit access, leaving the informal sector underserved and constraining inclusive economic growth.