KONTAN.CO.ID - JAKARTA. The Financial Services Authority (OJK) is developing new regulations related to Innovative Credit Scoring (ICS) for financial services institutions and is targeted to be released by the end of 2024. The regulation makes electricity payment history to social media uploads, alternative data in credit scoring assessments.

Responding to this, multifinance company Mandiri Utama Finance (MUF) welcomed the plan to implement the ICS regulation by OJK.

Head of Corporate Secretary & Legal MUF Elisabeth Lidya Sirait said the step was a relevant innovation to expand financial inclusion, especially for the unbanked who have had difficulty accessing financing because they do not have a credit history.

"As a finance company, we continue to monitor the development of the regulation and prepare strategic steps to integrate alternative data into the credit analysis process, of course while still prioritizing the principle of prudence," she told Kontan, Monday (11/25).

Elisabeth added that ICS allows companies to access new market segments that were previously difficult to reach, such as individuals who do not have a formal credit track record. In addition, she said the use of alternative data, such as electricity payments, telecommunications, or shopping patterns provides a broader picture of the risk profile of prospective debtors.

However, Elisabeth assessed that the use of alternative data also requires additional investment, both in terms of technological infrastructure and human resource training.

In addition, dependence on alternative data also needs to be balanced with supervision so as not to cause bias or misinterpretation.

Meanwhile, Elisabeth believes that the use of alternative data still has risks related to data accuracy and reliability, especially if the data source is inconsistent or less valid.

In addition, there is a potential risk of overfitting in the scoring model, if alternative data is used excessively without adequate validation.

"However, with supervision from regulators and the implementation of the right technology, this risk can be minimized," she said.

Elisabeth said that MUF's Non-Performing Financing (NPF) ratio as of October 2024 was at 1.31%. This value has improved, compared to October 2023 which was 1.52%.

Previously, OJK targeted the regulation on ICS or Alternative Credit Rating (PKA) to be completed by the end of 2024. Chief Executive of Financial Sector Technology Innovation, Digital Financial Assets, and Crypto Assets (IAKD) OJK Hasan Fawzi said that his party is currently finalizing the OJK Regulation (POJK) on ICS and is in the harmonization stage with the Ministry of Law and Human Rights (Kemenkumham).

"It's final. We want it a month from now, at the latest or by the end of this year," he said, Monday (11/11).

Meanwhile, ICS is the use of non-financial data, such as telecommunications data, e-commerce, and social media, in credit assessments.

ICS will utilize artificial intelligence (AI) and machine learning to process data in order to provide credit and loan eligibility assessments for unbanked and underbanked groups more quickly, accurately, and efficiently.