Developing smart, innovative credit methodologies
A peculiar characteristic of microfinance is that nearly all loans are unsecured. They are approved on the basis of the client’s credit history, business viability, reputation and repayment incentives such as through joint group liability. Innovation will help CreditAccess to assess creditworthiness more efficiently and reliably, as well as to create new forms of security.
The ability to assess creditworthiness in an efficient and reliable way is a key success factor for CreditAccess. The current process is a more or less traditional one, largely based on faceto- face contact and inquiries in the local community. One of the reasons for the Company’s success is that it has managed to streamline that process and minimise the cost involved. Yet it remains a time-consuming and labourintensive procedure.
Technology enables the development of alternative and/or complementary tools, such as behaviour score models and automatic algorithms based on advanced data analysis. The current expectation is that within five years, automated processes will be able to handle 80% of assessments. This not only represents relevant cost savings, but will also make the assessment procedure more objective and reliable.
A second goal is to develop alternatives and improvements to the traditional joint group liability (“JGL”) model which CreditAccess currently uses. For example, by designing and testing an ‘endorsement’ system in which clients are backed up by a network of guarantors, or by developing innovative systems to pledge properties as security. The programme will also look for ways to upgrade top-end JGL clients to individual loans clients, and to support Operating Companies in developing the required methodologies.