Mark Schreiner
(2005) Microfinance Risk Management, L.L.C.
Finance
in general—and microcredit in particular—is all about managing risk. Scoring
quantifies risk, and lenders in wealthy countries routinely use it 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 for uncollateralized loans for
the self-employed in poor countries is less powerful than scoring for credit
cards, home mortgages, or car loans in wealthy countries. While scoring for
microcredit is in its infancy, most adopters will probably be large,
microfinance-only institutions 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.