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
Date Written: September 2, 2014
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: Suggested Citation