The management of credit risk based on the relationship between risk and guarantee in both retail banks and microfinance institutions is a central element of loan transactions. However, each actor works through a different procedure: while banks make loan transactions and forecast risk based on statistical credit scoring with quantified characteristics recorded in a database, microfinance institutions analyse businesses and credit risk based on subjective analysis of cash flows and personal parameters such as experience in the business, net margin of the business, profitability and disposable income.

As governments are putting pressure on banks to downscale and growing MFIs will set up scoring systems, we see what can these two methods teach each other in this publication.