ABSTRACT
This chapter investigates the scope for improving credit risk evaluation criteria and procedures in financial markets in less developed countries where common bank loan analysis techniques are not appropriate, due to borrowers’ and environmental characteristics. The quality of loan portfolios has been related to weaknesses in the management of development banks and to the way that rural credit programs are implemented. The chapter discusses a credit scoring model that meets the objective successfully in Burkina Faso. Credit risk evaluation is a complex process involving careful analysis of borrower information in order to estimate the probability that the loan will be regularly repaid. The major problem encountered—the absence of the usual profitability and financial measures on the customers—finds an interesting solution in the use of factor analysis. In rural areas of less developed countries it is quite difficult and costly to collect reliable information on the customer’s profitability.
