Can Scoring Help Attract Profit-minded Investors to Microcredit?

Finance in general - and microcredit in particular - is all about managing risk. Scoring quantifies repayment risk, and lenders in wealthy countries routinely use scoring to rationalize decision-making and increase profits. Can scoring help attract profit-minded investors to microcredit?

Yes; explicit measures of risk facilitate informed, intentional management, and this not only increases profits but also weakens some institutional and governance barriers to private investment. At the same time, scoring uncollateralized loans for the self-employed in poor countries is less powerful than scoring credit cards, home mortgages, or car loans in wealthy countries. While scoring for microcredit is in its infancy, most adopters will probably be large microlenders who - due to competition - want to grow and improve profitability, as well as for-profit banks who want to ease their entry into microcredit markets.

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