Paper

Expanding Credit Access: Improving Microfinance Operations and Measuring Impact with Credit Scoring

Examining the impact of consumer credit on marginal groups
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This paper presents results of a field experiment in South Africa that determined the impact of consumer credit on marginal groups. The experiment focused on credit scoring as a potential method to expand client base. The experiment demonstrates evidence that expanding access to consumer credit enhances welfare, and that these loans are profitable for the lender. The study highlights the potential for credit scoring to assist MFIs in reducing risk and increasing efficiency. Findings include:

  • Scoring will lower costs by reducing the number of defaults and amount of time credit officers spend recovering loans;
  • Credit officers can pay special attention to certain cases by identifying potential credit risks in advance, allowing them to prevent defaults;
  • Further field experiments can develop a scorecard that can produce a comprehensive loan recommendation, instead of a simple accept or reject decision. 

By improving efficiency and reducing arrears, credit scoring will ultimately lower costs to the client, thereby attracting more and poorer clients to formal financial services. Credit scoring, therefore, promises to be a key ingredient in expanding financial access.

About this Publication

By Karlan, D. & Zinman, J.
Published