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Individual Lending Breakout Emily Silberstein, Entrepeneurial Finance Lab


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Individual Lending Breakout Emily Silberstein, Entrepeneurial Finance Lab

  1. 1. #bwffconf Building Women-Focused Finance: The Global-Local Experience Bettina Wittlinger de Lima Women`s World Banking #bwffconf <Speaker Social Media> Women-Focused Finance Building
  2. 2. #bwffconf How can financial institutions introduce and scale Individual Lending models while controlling credit risk?  Increasing over indebtedness of clients  Increasing competitive markets  Demand to reduce costs and gain operational efficiency by substitution of human-intensive microfinance credit process  Increasing sophistication  Economic and financial crisis Using the right business model and tools to manage risk becomes a key competence Building Women-Focused Finance 2
  3. 3. #bwffconf Change from the traditional Credit Model towards a more segregated Business Model targeting increase of productivity, efficiency and credit risk control Traditional Microfinance Model F u n c t i o n s Loan officer: • Promotion • Business evaluation & Client’s credit worthiness • Follow-up • Recovery …..……………….. Sales agents/Call center: Promotion Loan officer • Business evaluation & Client’s credit worthiness • Follow-up • Recovery Complete Separation of Functions Sales agents/Call center: Promotion Sales agents:/ Call center: Promotion Loan officer: • Business evaluation & Client’s credit worthiness • Follow-up Loan officer: • Business evaluation, & Client’s credit worthiness • Relationship management Recovery officer: overdue loans Credit officer: Credit risk analysis Recovery officer: overdue loans Building Women-Focused Finance 3
  4. 4. #bwffconf Credit Scoring: Consensus on importance for Microfinance ……. Credit scoring allows • Prediction of credit risk • Automatize and streamline credit process for renewal clients to gain mayor profit margins and competitive advantages • Prediction of the probability of dropping out clients • Collection Scoring: Prediction of risk profiles of clients to define collection policies • Strengthen portfolio risk management in terms of risk levels, trends among sectors, regions etc. Gaining productivity, efficiency and better credit risk control Building Women-Focused Finance 4
  5. 5. #bwffconf … but ongoing discussion on • What is best credit scoring model? • Will /shall it substitute the loan officers judgmental credit analysis? • What are the main challenges when implementing credit scoring models in Microfinance? Building Women-Focused Finance 5
  6. 6. #bwffconf Credit Scoring in Microfinance: some takeaways Credit scoring models for Microfinance demonstrate Remaining Challenges • Stability • Readability • Fair Discriminatory Power which can be improved by including rejected clients in the development of the model • Availability of comprehensive Credit Bureau information • Accurate and comprehensive databases • Existence of uncontrollable risks (change of occupation, vulnerability due to other family needs….) • Resistance from staff and management Building Women-Focused Finance 6