Abstract
Lenders in small financial systems often see credit deterioration only when loans are already in arrears. This paper sets out a framework for combining loan-level repayment behaviour with sector and macroeconomic signals into a small set of early-warning indicators, and describes how those indicators can be calibrated when portfolio histories are short.
Key points
- Proposes a three-layer indicator structure: borrower behaviour, portfolio composition and macro conditions.
- Sets out a calibration approach for institutions with limited loan-level history.
- Describes how indicators feed the Delinquency Transition Model (ALG-CREDIT-001).
Cite this working paper
Algocence Research Desk (2026). Early-Warning Indicators for Loan Portfolios in Small Financial Systems. Algocence Working Paper 2026-01. Ocho Rios, Jamaica: Algocence.