Scoring Arrears at a Microlender in Bolivia

Can scoring models help microlenders in poor countries as much as they have helped credit-card lenders in rich countries? This paper presents a scorecard that predicts the probability that loans from a microlender in Bolivia will have arrears of 15 days or more. Although arrears in microfinance depend on many factors difficult to include in scorecards, the paper shows that inexpensive, simple-to-collect data does have some predictive power. In microfinance, scoring will not replace loan officers, but it can flag high-risk cases and act as a cross-check on loan officer’s judgment. Author’s Note Mark Schreiner is a Senior Scholar in the Center for Social Development at Washington University in Saint Louis and a consultant with Microfinance Risk Management. He works to help the poor build assets via improved financial services. Acknowledgments I am grateful for support from the anonymous microfinance lender in Bolivia and for funding from the Division of Asset Building and Community Development of the Ford Foundation. I am also thankful for comments from the anonymous referees, John Adams, Jonathan Conning, Guillermo Rabiela, Loïc Sadoulet, Laura Viganò, and participants in the Third Annual Seminar on New Development Finance.