Pricing Microfinance Loans and Loan Guarantees using Biased Loan Write-off Data

Bhagwan Chowdhry, David Cassell, James B Gamett, Gary J Milkwick, Chad D Nielsen and Jon D Sederstrom

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: We present a simple, easy to implement methodology for pricing microfinance loans and loan guarantees using publicly available data on loan write-offs by Micro Finance Institutions (MFIs). Our methodology takes into account the selection bias inherent in available data in that MFIs that do not report loan write-off data are less likely to be better performers. Our quantitative analysis is consistent with pricing seen in a recent securitization deal. Our analysis suggests how securitization and loan guarantees can greatly expand the supply of funds for microfinance loans.

Keywords: microfinance; loan guarantees; securitization; selection bias; South Asia; India (search for similar items in EconPapers)
Date: 2005-04-12
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