ImpactScore: A Novel Credit Score for Social Impact
Socially motivated lenders pursue lending that considers both financial return and social good, yet they lack a systematic tool to incorporate such considerations into their decisions. This paper proposes the application of credit scoring mechanisms not only to the likelihood of default but also to the likelihood of happiness. Using the existing data on microcredit loan applicants in Bosnia and Herzegovina, we construct a full credit scoring model that involves the construction of outcome variables to accurately capture borrower’s change in subjective well-being, the classification of input variables depending on the ease of information acquisition, and the selection of the model based on different criteria. We also find that the variables on the household’s level of consumption have significant explanatory power in predicting future subjective well-being of loan applicants.