Leveraging Artificial Intelligence in Microfinance in the Global South: Regulatory Insights Into AI-Based Credit Underwriting
Microfinance has emerged as a key financial inclusion tool aimed at underserved populations, mainly in the Global South. However, it continues to face persistent structural challenges, particularly high operational costs, limited scalability, and mixed outcomes in poverty alleviation. Against this backdrop, this Article explores the integration of artificial intelligence (AI) into microfinance in the Global South, focusing on the use of machine learning for data-driven credit underwriting, which presents both a transformative opportunity and a profound regulatory challenge.
AI promises to enhance efficiency, accuracy, scalability, and financial inclusion, particularly through the use of alternative, non-financial data. At the same time, it introduces significant risks, including algorithmic bias, proxy discrimination, privacy violations, opacity in decision-making, and the erosion of accountability. These risks are especially acute in microfinance, where borrowers are often economically vulnerable, lack financial and digital literacy, and have limited recourse to legal protections.
This Article critically assesses the global regulatory landscape for AI, comparing comprehensive frameworks such as the European Union’s and South Korea’s AI Acts, with lighter or sectoral approaches in countries like the United States, the United Kingdom, Japan, and India. Acknowledging the practical and political limitations of adopting broad AI legislation in many developing jurisdictions, it argues for a sector-specific regulatory response .
This Article calls upon microfinance regulators to take the lead by imposing a set of minimum ethical principles on microfinance institutions. These principles include: respect for human rights, fairness, transparency, explainability, meaningful human oversight, privacy protection, and institutional accountability. Embedding these principles into supervisory frameworks, while tailoring them to the sector’s unique context, may enable microfinance institutions to harness the transformative potential of AI while advancing their core mission of financial inclusion and social empowerment.
Recommended Citation: Ruth Plato-Shinar, Leveraging Artificial Intelligence in Microfinance in the Global South: Regulatory Insights Into AI-Based Credit Underwriting, 49 Fordham Int'l L.J. 533 (2026).