A New Model to Expand Credit Access Globally

Serving poor consumers in a credit-starved economy is not easy. These borrowers may be vulnerable to shocks such as natural disasters or illness, and may not be able to provide documentation such as payroll records, bank statements, or credit history. Providing credit in these markets is costly and complex and is no longer done. A potential solution is predictive cash flow modeling (PCM), or the use of statistical models to predict the income and expenses of defined population segments. This knowledge allows lenders to know the appropriate loan size for each segment and also helps make decisions about timing and risk. The basic concept of PCM is not new. Financial institutions are using similar processes for commercial real estate portfolios, and microfinance institutions are experimenting with similar ideas. Building these cash flow models is likely to be complex and expensive, but charities may step in to help collect data and provide technical support.