Journal of Microfinance / ESR Review


Mark Schreiner


In rich countries, lenders often rely on credit scoring--formulae to predict risk based on the performance of past loans with characteristics similar to current loans--to inform decisions. Can credit scoring do the same for microfinance lenders in poor countries? This paper argues that scoring does have a place in microfinance. Although scoring is less powerful in poor countries than in rich countries, and although scoring will not replace the personal knowledge of character of loan officers or of loan groups, scoring can improve estimates of risk. Thus, scoring complements--but does not replace--current microfinance technologies. Furthermore, the derivation of the scoring formula reveals how the characteristics of borrowers, loans, and lenders affect risk, and this knowledge is useful whether a lender uses predictions from scoring to inform daily decisions. In the next decade, many of the biggest microfinance lenders will likely make credit-scoring models one of their most important decision tools.


Mark Schreiner is Research Director in the Center for Social Development at Washington University in St. Louis. He studies ways to help the poor to build assets through access to loans and saving services. In the United States, his research interests are development-based welfare policy, Individual Development Accounts, and microenterprise. In the third world, his research interest is microfinance. He has measured the social cost-effectiveness of Grameen Bank in Bangladesh and BancoSol in Bolivia, and he made the first statistical credit-scoring models for microfinance.



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Journal of Microfinance

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