BCBorobudur Consulting

Financial Services

Improving Loan Application Quality Without Raising Credit Risk

1. Executive Summary

The company’s rising verification spend, combined with the fact that many SME applicants are ultimately rejected, indicates a funnel design problem rather than only a credit assessment problem. Too many low-probability applicants are being allowed to progress into costly verification before the business has enough evidence that they fit policy, risk appetite, and target economics.

The practical implication is clear: verification is being used too often as a discovery mechanism for poor-fit applicants, when it should mainly be used to confirm already promising ones.

Our recommendation is to redesign the front of the funnel around risk-adjusted triage:

This approach supports the stated goal: improve application quality and approval rate without increasing credit risk in an uncontrolled way. The target is not maximum approval volume. The target is a higher share of applicants entering verification who are both approvable and consistent with the firm’s portfolio growth and risk appetite under OJK constraints.

2. Corrected Problem Diagnosis

The core issue should be defined more precisely as:

The company likely has an inefficient pre-screening and triage process that allows too many low-likelihood SME applicants from weaker channels or weaker fit segments to enter expensive verification, reducing operating efficiency and depressing approval conversion.

This diagnosis is stronger than saying “verification costs are rising,” because it identifies where the system is breaking:

So the objective is not to “approve more people” in a blanket sense. It is to increase the quality of applicants entering costly stages, which should improve approval rate among verified applicants while keeping default risk aligned with policy and growth targets.

3. Evidence Base and What It Does / Does Not Prove

What the internal data can support

The company has the right core data to diagnose the funnel:

With these variables, management should be able to answer high-value questions such as:

This is enough to support a practical triage redesign, even if more granular operational data would improve precision.

What the cited evidence contributes

Most listed references are not direct evidence on SME credit funnel optimization. They do, however, loosely reinforce several implementation themes:

What the evidence does not prove

The current evidence does not prove:

So the right immediate posture is test-and-learn, not a one-time hard reset.

4. Integrated Strategic Recommendation

We recommend a three-layer funnel redesign.

A. Build a “verification-worthy applicant” standard

Define explicit criteria for who should advance beyond low-cost screening. This should combine:

This standard should become the common operating definition across growth, credit, and operations.

B. Introduce staged triage before full verification

Move from a broad funnel to a staged one:

  1. Eligibility and fit gate:

    2. Basic policy fit, segment suitability, and document readiness.

  2. Risk and economics gate:

    3. Simple rules using source, score, and historical rejection/default patterns.

  3. Verification gate:

    4. Only applicants with sufficient expected approval probability and acceptable risk-adjusted economics proceed to costly checks.

This sequencing reduces spend on obviously poor-fit applications while preserving capacity for promising segments.

C. Reallocate acquisition toward quality, not raw volume

Shift channel optimization away from lead count and headline CAC alone. Evaluate campaigns on:

Some low-CAC channels may be value-destructive if they fill the funnel with weak applicants.

D. Improve applicant guidance before submission

Use clearer eligibility messaging and document guidance to reduce premature or unsuitable applications. This is especially important in SME contexts, where applicants may not fully understand underwriting expectations.

The goal is not to discourage good applicants. It is to help borderline or unprepared applicants self-qualify, prepare better, or delay application until ready.

E. Establish a closed-loop management system

At minimum, track monthly:

This turns the funnel into a managed portfolio rather than a series of disconnected decisions.

5. Marketing, Stakeholder, Operations, and Finance Implications

Marketing implications

Stakeholder implications

Operations implications

Finance and risk implications

6. 30-60-90 Day Action Plan

First 30 days: diagnose and define the control points:

Days 31-60: pilot triage and messaging changes:

Days 61-90: optimize and prepare scale-up:

7. Risks, Assumptions, and Validation Questions

Key risks

Core assumptions

Validation questions

8. Decision Checklist

Before approving the redesign, management should confirm:

9. References Used

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