Assessing the efficacy of a South African microlender's loan screening mechanism

M.E. Kuhn, Mark A.G. Darroch and Gerald F. Ortmann

Agrekon, 2000, vol. 39, issue 4, 9

Abstract: Bivariate probit analysis was used to assess the efficacy of a South African microlender’s loan screening process. This micro-lender grants short-term cash loans to individuals who are employed and earning a fixed salary. Loan applicants with more stable incomes, who are contactable via telephone or post, who are employed in less risky business sectors, who have more disposable income relative to debt, and who have had a good credit history with other lenders, are more likely to be accepted. None of the factors with a significant effect on the loan screening decision could explain subsequent loan default by accepted applicants. The microlender may have screened out very risky clients and accepted a riskier, profitable pool of loan applicants with risk being controlled through effective monitoring. This is important where tangible collateral is unavailable and where the risk must be acceptable to commercial lenders wanting to link up with profitable micro-lenders.

Keywords: Financial; Economics (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ags:agreko:54229

DOI: 10.22004/ag.econ.54229

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