Guides · For lenders · 5 min read
Portfolio at risk (PAR) explained, with examples
What PAR 1, PAR 30 and PAR 90 mean, how to calculate them, and why PAR is a better warning sign than arrears.
Portfolio at risk (PAR) is the most widely used measure of loan quality in microfinance and SACCOs. It tells you what share of the money you have out on loan sits with borrowers who are behind.
The formula
PAR 30 = outstanding principal of all loans with a payment more than 30 days overdue ÷ total outstanding principal of all loans.
The key point: PAR counts the whole remaining balance of a late loan, not just the instalment that was missed. If a borrower is late on one payment, the whole loan is at risk.
Worked example
| Loan | Outstanding | Days overdue |
|---|---|---|
| A | 1,000,000 | 0 |
| B | 800,000 | 12 |
| C | 500,000 | 45 |
| D | 700,000 | 0 |
| E | 1,000,000 | 95 |
| Total | 4,000,000 |
- PAR 1 = (800,000 + 500,000 + 1,000,000) ÷ 4,000,000 = 57.5%
- PAR 30 = (500,000 + 1,000,000) ÷ 4,000,000 = 37.5%
- PAR 90 = 1,000,000 ÷ 4,000,000 = 25%
The arrears (the instalments actually missed) might be only a fraction of that. That is why arrears alone make a portfolio look healthier than it is.
What is a good PAR?
Many microfinance lenders aim to keep PAR 30 below about 5%. What matters most is the trend: a PAR that rises month after month is a warning, even if it is still low.
How to bring PAR down
- Follow up on PAR 1, not PAR 30. A loan a few days late is much easier to recover.
- Look at PAR by loan officer, product and branch to find where the problem is.
- Tighten the checks before lending (see our guide on borrower checks).
- Restructure genuinely struggling borrowers early, and record it, rather than hiding the problem.
- Write off loans you will not recover, after provisioning for them, so your reports stay honest.
Prograte calculates PAR 1 to PAR 90, arrears ageing, risk classes and provisions every night, by officer, product and branch.
See loan management software