Credit scoring for group lending - an analysis of the Kenyan Microfinance Institutions
Date
2014-03-31
Authors
Otieno, Antony Omondi
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Microfinance Institutions play a major role in expanding the reach of microcredit programs in the Kenyan economy through providing group lending. This initiative has been hampered by lack of a risk-based pricing and mitigation system, which motivated this study. Even though there are credit scoring models currently in use, my findings shows clearly that there is need to develop a universal credit scoring model to help reduce reliance on collateral resulting in a lower cost of borrowing for the lowest-risk customers and potentially greater credit availability for higher-risk customers, groups which have lower delinquency rate. The study also show that for universal scores to become available for both small and large lenders, more bureaus must be licensed, and sufficient data must be collected to build a score that consistently rank-orders risk, repm1ing of positive information should be become mandatory and groups must deal with the specific factors affecting their ability to acquire loans. Given these findings, policy makers should gazzete the credit bureau regulations, license more credit bureaus and make reporting of both positive and negative information from all banks mandatory. Similarly, MFis should develop a mode of data collection and sharing for sufficient volumes to make scoring cost-effective and promote training and capacity building programs in risk-management analytic for groups before issuing loans. These initiatives also extends to the groups themselves who should eliminate the challenges that affect their lending ratings, such as keeping proper lending records, engaging in large scale and secure businesses, regular meetings, regular saving patterns and reduce internal conflicts among members.
Description
A Research submitted in Partial fulfillment for the award of Bachelor of Business Science Financial Economics
Keywords
Group lending, Credit scoring, Kenyan Microfinance institutions