CGAP IT Innovation Series: Credit Scoring
This paper studies the case of using the scoring technology to analyze historical client data, identify links between client characteristics and behavior, and predict several types of client behavior.
The note informs that the different types of scorecards used for specific purposes include:
- Credit scoring - automates the application approval process by predicting the likelihood of repayment problems;
- Visit scoring - enables prioritizing clients most likely to respond to the MFI's marketing effort;
- Collections scoring - assigns collection strategies based on the client's profile;
- Desertion scoring - helps in identifying customers most likely to leave the institution.
As per the author, the requirements for credit scoring include:
- Centralized database of relevant client information;
- Database dedicated to scoring information;
- Management commitment to project implementation and fostering organizational/ cultural change;
- Resources and staff from technology and credit departments to integrate, maintain, and refine scoring applications.
Further, the paper presents:
- The benefits and costs of credit scoring;
- The use of credit scoring technology in microfinance by network organizations such as ACCION International and Women's World Banking, with their affiliates, such as BancoSol (Bolivia), Mibanco (Peru), and Unibanka (Latvia).
Finally, the paper suggests the points to consider before the implementation of credit scoring:
- Ensure high quality data;
- Consider building automatic data collection tools;
- Monitor scorecard effectiveness;
- Use scoring technology to develop strategies, processes, and products to best serve each client segment.