A few months ago I blogged about the purpose of credit bureaus and some operational elements involved in setting them up. This is a continuations of that post.
Risk Assessment Features of a Microfinance Credit Bureau
- Risk assessment based on the profession of a borrower - A borrower who already has a low-income yet stable job, or runs a business, may be entitled to a larger loan than a client who has no former experience with microcredit or running businesses. Each borrower can build his/her credibility over time in order to become eligible for bigger, or flexible loans.
- Risk assessment based on use of mobile banking records – Payment histories can be created by tapping into the transaction histories of mobile money accounts (Easy Paisa, M-Pesa, MITRA, Wizzit, which are services in Pakistan, Kenya, India and South Africa, respectively) of borrowers. This idea was originally introduced in a case study entitled, Mobile Banking – The Key To Building Credit History For The Poor?
- Detailed credit ratings versus blacklist – The credit bureau can either disclose client names, histories, risk and mathematical credit ratings to MFIs (positive credit bureau) or simply provide the names of high-risk clients (negative credit bureau). In Pakistan and other countries that see high-growth in the microfinance sector as well as high poverty rates, a positive credit bureau would be better than a negative one because it allows microfinance providers to analyze detailed information about the poor, and design products to suit their particular risk profiles.
Pitfalls to be Prepared For When Setting Up a Credit Information Bureau
- A dearth of information about borrowers is a major issue for a microfinance credit bureau because of the nascence of the sector and varied book-keeping styles.
- Specialized microfinance credit bureaus (limited to certain towns or cities) may capture the nuances of micro segments in the market, but their data can neither be analyzed nor used by a large number of MFIs.
- Containing costs will be difficult considering the small number of large accounts that need to be maintained. Grants and subsidies can be offered to cover costs, as in India.
