Credit scoring: A historic recurrence in microfinance

Abstract

Abstract Microfinance is a new credit segment that can benefit greatly from the advantages the credit scoring technique can offer. In the developing countries even the professionals are not familiar with the technique of credit scoring and many microfinance institutions that serve millions of borrowers do not consider using it. Since the credit scoring technique did not evolve fast enough to meet the needs of microfinance, its adoption by microfinance institutions is slow and resembles more a historic recurrence rather than a new historical stage. We outline a conceptual framework of credit scoring that enables the use of this technique in micro lending, avoiding the pitfalls of the past.