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Open Access Publications from the University of California

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

  • Author(s): Chowdhry, Bhagwan
  • Cassell, David
  • Gamett, James B
  • Milkwick, Gary J
  • Nielsen, Chad D
  • Sederstrom, Jon D
  • et al.
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.

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