Scoring - A method to judge the risk of a borrower, especially a small borrower, may help the banks to reduce its credit risk. A large scale microlending will be possible for banks with the help of scoring. The chief obstacle to effectively implement this method is large scale data requirement about the borrowers.

The challenge of microcredit is to judge the risk of whether the self-employed poor will repay their debts as promised. Scoring is a new way to judge risk; is it the next breakthrough in microcredit? Scoring does reduce arrears and so reduces time spent on collections, and this greater efficiency improves both outreach and sustainability. Scoring, however, is not for most microlenders; it works best for those with a solid individual lending technology and with a large database of historical loans.

Joint-liability groups and loan officers who make detailed personal and financial evaluations of individual borrowers and of their homes, businesses, and collateral. Scoring is another new way to judge repayment risk. It detects historical links between the repayment performance and the quantified characteristics of loan applications, assumes those links will persist through time, and thenbased on the characteristics of current applicationsforecasts the future repayment risk.

For the few microlenders who are already large, who are already well-run, and who already possess adequate electronic databases, scoring can indeed expand the efficiency frontier, and so can improve both poverty outreach and organizational sustainability. Scoring does this mostly by reducing the time spent collecting overdue payments from delinquent borrowers; a typical loan officer might save about half a day per week.

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