Retail versus SME Credit Scorecards

From Open Risk Manual

Retail versus SME Credit Scorecards

Both Retail and SME Credit Scorecards are credit scorecards used in the classification (scoring) of Credit Risk for Consumer Credit and SME Lending respectively.

Such scorecards have similarities but also distinct differences. This entry goes over the comparison:

Similarities

  • Both categories typically involve quantitative (statistically developed) credit scoring models using broadly similar mathematical forms (e.g. a Logistic Regression Credit Scorecard). Thus there is very strong procedural similarity and a commonality of tools used
  • For micro and small enterprises there is typically a strong dependency on the risk profile of the business owner (a Natural Person) hence retail credit score factors may be relevant

Differences

  • For larger SME's (medium size enterprises) the profile of the founder / owner may not be as relevant
  • Financial information for SME's will involve the cashflows of the enterprise as opposed the individual / household income
  • The lending products are different:
    • different purposes
    • potentially more complex contracts
  • There is broader range of collateral to secure business lending

Issues and Challenges

  • The differences in the nature of the risk as SME size grows are not easy to capture

See Also