Guide / Toolkit

A Handbook for Developing Credit Scoring Systems in a Microfinance Context

Guide for banks, MFIs and donors considering applying credit scoring as part of their business model
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This research draws on the experience of seven microlenders from three continents to illustrate a four-step framework for designing and implementing custom credit scorecards. The study:

  • Describes a four-step process for developing a credit-scoring model in the microfinance context;
  • Offers recommendations for situations in which historic data are limited or do not match future strategy and objectives;
  • Provides guidelines on how to apply credit scoring in a microfinance context:
    • Defining the scoring segment;
    • Selecting the type of scorecard;
    • Designing the credit scorecard: Definition, discovery, and development;
    • Testing, implementing, and managing the scorecard: Back testing, pilot testing, training, integration with IT systems, and long-term model management.

The handbook also lists the benefits of the framework:

  • Framework is flexible;
  • It does not advocate any one rigid methodology or technology;
  • It is appropriate to any organization with a clear strategy and some experience lending to its target market.

It finally concludes that a scorecard properly developed and managed can:

  • Speed loan processing;
  • Inform pricing and provisioning;
  • Can help banks and MFIs save costs, reduce subjectivity, and improve risk management.

About this Publication

By Alexiev, Z., Barton, S., Brislin, N., Bundred, F., de Zubiria, A., Caire, D. & Dyer, J.