Publications
Published on October 1, 2008

The potential for credit scoring for SME lending in Kenya

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Summary

Fewer than 20 percent of small to medium sized enterprises (SMEs) in Kenya have ever received credit from formal financial institutions. Access is limited due to challenges in assessing SME risk in a costeffective manner. Lenders in Kenya address this risk-assessment problem either by not lending to SMEs at all or by requiring collateral and charging high interest rates. High-income countries, such as the United States, have addressed this challenge in part by using credit scoring. Credit scoring has the potential to offer a number of benefits which can improve access to credit for SMEs. There are also a number of prerequisites that must be in place, however, in order to fully realize the potential benefits of an effective risk management strategy that incorporates credit scoring.

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