Portfolio at risk (PAR 30) explained for small lenders
Your collection rate can look fine while your loan book quietly goes bad. PAR is the number that tells you first.
The FinanceMe.lk team. . 5 minute read.
Ask a lender how the business is doing and most will tell you how much they collected this month. It is a comforting number, but it can hide a problem for months. Portfolio at risk shows it straight away.
What PAR means
PAR 30 is the share of your outstanding loan principal that belongs to loans with at least one instalment more than 30 days overdue.
The important word is *belongs*. If a borrower owes Rs. 40,000 and has missed one instalment of Rs. 2,900 by 35 days, the whole Rs. 40,000 counts as at risk, not just the missed Rs. 2,900. Experience shows that a borrower who is a month behind is far more likely not to repay the rest.
How to work it out
- List every active loan with its outstanding principal.
- Mark the loans where the oldest unpaid instalment is more than 30 days late.
- Add up the outstanding principal of the marked loans.
- Divide by the total outstanding principal of all loans.
| Outstanding principal | |
|---|---|
| All active loans | Rs. 14,250,000 |
| Loans more than 30 days late | Rs. 485,000 |
| PAR 30 | 3.4% |
PAR 1, PAR 60 and PAR 90 work the same way with different day counts. Looking at them together shows whether late loans are catching up or sliding further behind.
Why the collection rate misleads
Suppose a company lends faster this quarter. Lots of new loans have instalments falling due, and most new borrowers pay on time. The collection rate goes up, even if older loans have stopped paying altogether. PAR is not fooled by growth, because it looks at each loan, not at this month’s cash.
What is a healthy figure?
A PAR 30 below about 5% is widely treated as a sign of a well-run microfinance portfolio. More useful than any benchmark is your own trend: a PAR 30 that rises for three months in a row needs attention, whatever the level.
Look at PAR by:
- Officer. One officer with a much higher PAR than colleagues often points to poor screening or, sometimes, to collected cash not being recorded.
- Product. A product with high PAR may be priced or sized wrongly for its borrowers.
- Branch and centre. Local events, such as a failed harvest or a factory closing, show up here first.
How FinanceMe.lk handles it
FinanceMe.lk recalculates arrears every night. The dashboard shows PAR 30 each morning, and the portfolio report breaks PAR 1, 30, 60 and 90 down by product, officer and branch, with the list of late loans behind every number.