The Use of Credit Scoring in Microfinance Institutions and Their Outreach

Strategic Change: Briefings in Entrepreneurial Finance, Vol 23, pp. 401-413 (2014), DOI: 10.1002/jsc.1985

Posted: 18 Jan 2015

See all articles by Vitalie Bumacov

Vitalie Bumacov

Oxford Brookes University

Arvind Ashta

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté

Pritam Singh

Oxford Brookes University

Date Written: September 2, 2014

Abstract

Microfinance institutions that use credit scoring increase the productivity of their loan officers, thus leading to an increase in the number of borrowers, higher growth in the number of loans, and expanding financial inclusion and developmental opportunities.

Credit scoring contributes to a faster growth in outreach of microfinance institutions - better financial inclusion is offered to more low-income beneficiaries.

The use of credit scoring has great potential for diminishing inefficiencies related to microloan appraisal procedures, which are burdensome due to high information asymmetry and ignorance.

The benefits of credit scoring come with a financial cost - the development, implementation, and maintenance of the scoring tool - and with a social cost - the good borrowers who are screened out by the scoring tool.

Credit scoring by increasing financial inclusion expands developmental opportunities in emerging economies.

Keywords: credit scoring, microfinance, financial inclusion

JEL Classification: D81, G02, G21

Suggested Citation

Bumacov, Vitalie and Ashta, Arvind and Singh, Pritam, The Use of Credit Scoring in Microfinance Institutions and Their Outreach (September 2, 2014). Strategic Change: Briefings in Entrepreneurial Finance, Vol 23, pp. 401-413 (2014), DOI: 10.1002/jsc.1985. Available at SSRN: https://ssrn.com/abstract=2551154

Vitalie Bumacov

Oxford Brookes University ( email )

Gipsy Lane
Headington
Oxon. OX33 1HX, OX3 0BP
United Kingdom

Arvind Ashta (Contact Author)

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté ( email )

29 rue Sambin
21000 Dijon
France

Pritam Singh

Oxford Brookes University ( email )

Gipsy Lane
Headington
Oxon. OX33 1HX, OX3 0BP
United Kingdom

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