Credit Scoring for MicroenterpriseBenefits to MFIs | Our Service | Credit Scoring Process | Contact Us
To increase efficiency and improve portfolio quality, microfinance institutions (MFIs) have long sought a practical and reliable tool to objectively rate prospective borrowers and calculate the risk of extending credit to them. To this end, ACCION International has adapted Credit Scoring, traditionally the domain of the formal banking sector, to the unique needs and goals of the field of microfinance.
Benefits to Microfinance Institutions (MFIs)
The aim of Credit Scoring is to help MFIs improve their loan evaluation processes while lowering the labor costs of authorizing and collecting loans. With thorough implementation and organization-wide compliance, Credit Scoring allows MFIs to: - Streamline the lending process and increase loan officer efficiency;
- Process data quickly and inexpensively;
- Process larger volumes of credit applications in less time;
- Increase the accuracy of the evaluation process;
- Reduce the cost of underwriting loans for borrowers;
- Underwrite and monitor some loans without on-site client business inspections;
- Better predict potential losses;
- Remove possible bias by developing objective criteria and standardizing policies and procedures;
- Reduce risk and increase efficiency of recovery process (step to Basel 2 compliance).
ACCION's Services
ACCION’s Credit Scoring model, the first automated method for credit analysis in microfinance, allows MFIs to use historical information on client characteristics and credit-related variables to calculate the risk of extending credit. Data on variables such as demographic characteristics, characteristics of the microentrepreneur and microenterprise, and payment history (if available) are analyzed. A scorecard is developed that awards points for each factor that helps predict clients’ credit worthiness. The total number of points – the credit score – helps predict the likelihood of repayment based on the quantification of the characteristics included in the database. By leveraging the following three different “scorecards,” ACCION’s Credit Scoring model helps MFIs create an overall reduction of costs institution-wide: - Selection (of prospective clients): The selection scorecard uses information from the loan application, analysis of historical data, and data from a centralized credit bureau (if available) to identify potential clients and select and approve new clients.
- Segmentation (of existing clients): Once clients have established a credit history with the MFI, the segmentation scorecard is used to provide recommendations regarding the renewal of credits, with the goal of retaining good clients efficiently. This scorecard can also be used to suggest other suitable products for a particular client to the loan officers.
- Collections: The collections scorecard is used to gauge the probability of not receiving an upcoming loan payment in a timely manner. It can be used to set differentiated payment strategies that reflect the risk within borrower populations, to prevent delinquency and to improve the recovery of delinquent loans.
Credit Scoring Process
Full implementation of Credit Scoring including pilot testing and roll-out at all branches, takes approximately one year. ACCION typically assembles a team that includes external consultants and project leaders from the MFI staff to develop the Credit Scoring system in the following phases: - Month 1: Construction of a Credit Scoring Database
- Months 2-4: Development of the Credit Scoring Model
- Months 5-8: Systems Development
- Months 9-11: Pilot
- Month 12: Full Implementation and Transfer to MFI
ACCION also offers post-launch project sustainability consultation and maintenance. Should an MFI elect to receive these services, the timeframe will be determined based on the specific needs outlined.
Contact Us
For more information about ACCION’s Credit Scoring or other technical assistance services, please contact:
ACCION International Headquarters
56 Roland Street, Suite 300
Charlestown, MA 02129
Tel: (617) 625-7080
Fax: (617) 625-7020
Centro ACCION, Latin American Headquarters
Calle 70 A N° 7-81
Bogotá, Colombia
Tel: (571) 607-0700
Fax: (571) 607-0701
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