Traditional banking frameworks measure credit health using Non-Performing Loan (NPL) ratios tracked on a 90-day default horizon. Because microfinance loans feature high-frequency repayment cycles (often weekly or bi-weekly), MFIs use a faster, more sensitive metric: Portfolio at Risk (PAR).

The PAR metric calculates the total outstanding balance of all loans that have an overdue payment, even if the missed payment is minor. The plain-text calculation formula requires:

PAR_Days = Total Outstanding Principal Balance of Loans with Past-Due Days > Days / Total Outstanding Loan Portfolio

For example, if a microfinance institution has a total outstanding loan portfolio of 5,000,000, and corporate ledgers show that the total remaining balance of all loan files with a past-due payment exceeding 30 days is 250,000, the calculation is:

PAR_30 = 250,000 / 5,000,000 = 0.05 = 5.0%

A PAR_30 ratio rising above 5.0% flags a significant deterioration in credit health, prompting risk teams to adjust provisioning reserves and review underwriting standards before losses impact capital stability.