Risk Mitigation as a Cost-Effective Microfinance Strategy
This study highlights the impact of the emergence of credit reporting systems on expanding access to microfinance. Credit reporting in Peru included both the expansion of mandatory credit information reporting on small loans by the Superintendency of Banks and Insurance and the emergence of credit bureaus. Reveals the potential impact of this approach:
- By providing transparent information to the financial institutions on the credit history of small borrowers, one lowers the risk to financial institutions of lending to this sector;
- Expands access by the poor to credit;
- Lowers the transaction costs to financial institutions of lending to this sector;
- May also promote a culture of repayment and help avoid a credit bubble as economies expand.
Concludes that the improvement of credit risk reporting may prove to be a far more cost-effective way of promoting nearly universal access to credit. Would seem to be an important component of a microfinance program
[Based on the authors' abstract]