Credit Methodology: Avanza, A New Model in Microfinance

>Posted by Center Staff
For decades, microfinance has struggled with the high operating costs associated with making very small loans – but a new project launched by Accion seeks to decrease operating costs and increase disbursement speed by better analyzing client risk.
Traditional microfinance relies on a single loan officer who works with a client through the entire loan process, from loan application, to evaluation, disbursement, and collection. Even the most efficient microfinance institutions (MFIs) can take several days to process and disburse a loan, which can create problems as risk may not be adequately assessed and fewer clients are reached.
Avanza, a new service developed by Accion, seeks to increase the efficiency of MFIs by managing microfinance portfolios on behalf of banks and microfinance institutions. Its first client is Finamérica, a leading Colombian MFI,that operates in a high density municipality with active commerce and high competition. The service handles promotion and evaluation of prospective clients, as well as loan disbursement for financial institutions. By breaking down the tasks of a traditional loan officer into multiple functional areas, each of which is operated by a specialist, Avanza allows institutions to speed up the underwriting and disbursement process. Avanza’s methodology classifies clients by risk profile and thus the MFI is able to better tailor the relationship, product and approach to individual clients. You can read more about Avanza in this press release and an interview with Program Manager Reinel Torres in in English/Spanish.

Avanza represents a leap forward in credit methodology and, by all accounts, should increase efficiency, reduce costs, and lessen risk both for the MFI and the client. How does such new technology affect the client/loan officer relationship that is so central to the operations of many MFIs? We invite you to share your comments.

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