Scoring for Microfinance

This presentation discusses scoring and the use of scorecards in microfinance. It analyzes the costs and benefits of scoring and sets out the steps involved in a scoring project. Scoring forecasts risk based on historical links between risk and characteristics. It forecasts percentage chance. It assumes that current cases will behave like cases approved in the past with similar characteristics.

The presentation lists out the following steps in the use of scoring:

• Keep standard underwriting process;
• Consult scoring only after provisional approval;
• Use dead test to set policy ranges;
• Constant, systematic performance tracking is necessary.

Scoring facilitates risk management and helps manage risk after disbursement. It takes less time to collect and more time to market. It has predictive power that is testable before use. Scoring facilitates portfolio management. Challenges involved in scoring are that it involves a sharp organizational and cultural change and needs to be integrated in the MIS. It is dependent on loan officers and managers. Users must trust that scoring works and mistakes in scoring are costly.