A quantitative loan appraisal tool for microfinance

Abstract

Micro loans have been embraced by many who seek working capital to boost their small-scale business operations. Microfinance institutions being mindful of the risk associated with lending,have come up with several methodologies to guide them in determining whom to lend to and in some cases by how much to lend. One of the many methodologies in use, is the cashflow based lending where the borrower is assessed for credit worthiness using certain business parameters. The common practice is that the microfinance representative conducts loan appraisal or credit worthiness assessment and completes the rest of the paperwork later leaving the borrower unsure of the outcome of the assessment for a while. In some cases, the outcome was negative leading to disappointments and time wastage on the part of the borrower. This study focused on empowering the microfinance clientele with a self-assessment tool to conduct their own loan appraisal or credit worthiness check. The requirements gathered revealed that the average microfinance customer would not be able to understand the technical input or outcomes from the appraisal however, they would easily answer specific and simplified questions leading to the quantitative analysis that is used for determining whether they qualify for a loan or not. The outcomes being colour coded are easier to interpret thus simplifying understanding of the outcomes of the appraisal. The technological trends and innovations today have enabled the distribution of mobile technology and innovations widely. This has presented an appropriate platform for the loan appraisal tool to be developed on mobile technology for use by the ordinary people