Scoring for Microfinance
Schreiner, M.
Publication Date: Mar 2001
Published by: World Bank
Document Type: Presentation
What are the advantages of scoring in microfinance?
This presentation studies the utility of scoring in microfinance as a method for judging risks. The presentation:
- Compares scoring with subjective judgment for microfinance clients;
- Presents examples from the application of scoring in microfinance;
- Lists the factors adjudged in complete scorecards;
- Describes the steps in scoring project;
- Identifies the key constraints of scoring;
- Estimates the costs and returns in implementing scoring.
The presentation lists the strengths of microfinance scoring over subjective judgment:
- Quantifies risk;
- Makes judgments more consistent;
- Allows precise policy adjustments;
- Reduces time spent in collection;
- Enables better risk-based decisions (such as pricing);
- Can test power before use.
Further, it presents the challenges for microfinance scoring:
- Lack of credit bureaus;
- Idiosyncratic risk of self-employment;
- Constant change;
- Cannot replace subjective judgment;
- One size does not fit all.
Finally, the presentation lists the role that donors/networks could play in supporting microfinance scoring:
- Support MIS for scoring in 2-3 years;
- Support credit bureaus;
- Finance pilots (peer pressure);
- Educate proper place for scoring.
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