Measuring Delinquency and Default in Microfinance Institutions

The article focuses on the efficiency of an MFIs management control system in accurately assessing the quality of its loan portfolio from financial data. It is intended for typical MFIs and not those with high quality portfolios. In this article, a loan is delinquent if it is delayed and in default if one or more installments are never repaid. The article states that default and delinquency measures appropriate for commercial banks need to be applied with care when used with MFIs, and that the monitoring approach used in the industrial cooperation accounts receivable may be of some help to MFIs. It uses a model to test the effectiveness of standard default and delinquency measures. The paper concludes that the mature current collection rate is a good measure for estimating default. If loan provisioning is based on the estimate, net portfolio-at-risk numbers will not be misleading.