Smart Natural Disaster Relief: Assisting Victims with Artificial Intelligence in Lending

Natural disasters can have devastating economic and financial consequences for those affected. This research note explores the potential of artificial intelligence (AI) in disaster relief through lending services. By collaborating with a credit-scoring company, we investigate how AI-empowered lenders can effectively reduce delinquency rates for borrowers in the aftermath of disasters. Our findings reveal that borrowers applying to lenders that utilize AI in their loan assessment process experience improved outcomes in terms of delinquency reduction, particularly for borrowers with lower credit scores. This research underscores the positive impact of AI in the lending context, benefiting both lenders and borrowers. Furthermore, we highlight that AI indirectly supports disaster relief efforts through financing, providing a compelling use case for AI fairness in lending. Our findings have significant implications for leveraging AI as a valuable tool in mitigating the financial impact of disasters and promoting fairness in lending practices. Natural disasters wreak economic havoc and cause financial distress for victims. Commercial loans provided by lending firms play a key role in helping victims recover from disasters. This research note studies whether lenders’ use of artificial intelligence (AI) in the lending process can, through reducing delinquency, benefit borrowers who experience natural disasters. Collaborating with a leading credit-scoring company, we track borrowers’ loan applications and lenders’ use of customized AI solutions in assessing loan risks. We find that borrowers who apply to AI-empowered lenders fare better in reducing delinquency rates after experiencing natural disasters. Notably, such a disaster mitigation effect is more pronounced for borrowers with lower credit scores. We explore the possible mechanisms at play and discuss the implications of our findings. History: This paper has been accepted for the Information Systems Research Special Section on Unleashing the Power of Information Technology for Strategic Management of Disasters. Ahmed Abbasi, Robin Dillon-Merrill, H. Raghav Rao, and Olivia Sheng, Senior Editors; Zhepeng (Lionel) Li, Associate Editor. Funding: This work was partially supported by the Research Grants Council of the Hong Kong Special Administrative Region, University Grants Committee [General Research Fund Grants 11501722 and 11500519]; the City University of Hong Kong [Strategic Research Grants 7005474 and 70057