The short answer
Portfolio at risk (PAR X) is the outstanding principal of every loan with an instalment overdue by more than X days, divided by the gross loan portfolio. So PAR 30 is the outstanding principal of loans more than 30 days overdue, divided by the gross loan portfolio, multiplied by 100. The whole remaining principal of a late loan counts as at risk, not just the missed instalment, and accrued interest is left out.
Lenders usually track three cuts: PAR 1 as an early warning, PAR 30 as the headline measure of portfolio quality, and PAR 90 for seriously delinquent loans that drive provisioning and write-off reviews. A PAR 30 below 5% is commonly cited as a benchmark for a healthy microfinance portfolio, but it is a reference point, not a rule, and both write-offs and restructured loans can flatter it. Getting PAR right means knowing the days past due of every loan on every date, which is why growing lenders move it out of spreadsheets and into a loan system.
The PAR formula, and what goes into it
The formula is simple. The errors come from what people put at the top and bottom of it.
PAR X = outstanding principal of all loans with an instalment overdue more than X days, divided by the gross loan portfolio, multiplied by 100.
PAR 1, PAR 30 and PAR 90
- PAR 1: any loan that has slipped past a due date. It is noisy, because some borrowers pay a day or two late every cycle, but it is the earliest signal a loan officer gets.
- PAR 30: the headline quality measure. Thirty days is the most common standard, though a regulator may require a different cut, so always state the number of days next to the figure.
- PAR 90: seriously delinquent loans. The older ageing buckets carry the heavier provisions, so this is the cut finance teams watch when setting provisions and reviewing write-offs.
The numerator: what counts as at risk
- The entire unpaid principal of a late loan, including instalments not yet due. If one instalment is 45 days late on a loan with 8,000 of principal still owed, all 8,000 is at risk.
- Principal only. Accrued interest, fees and penalties stay out, so the figure measures capital you could lose, not income you have booked but not collected.
- Restructured loans, stated explicitly. The CGAP consensus guidelines on microfinance ratios define PAR without restructured or rescheduled loans and report those separately, but they ask lenders to say whether restructured loans are in their PAR, and some lenders include them automatically because they carry higher risk. Either way, flag them: if the six loans in Group C of the example below were rescheduled and their clocks reset, PAR 30 would fall from 5% to 2% overnight without a single payment coming in.
The denominator: gross loan portfolio
Use the outstanding principal of all loans on the same date, including current, delinquent and restructured loans, before deducting any loan loss allowance and without interest receivable. Loans already written off are not part of it, which matters more than most people expect, as the write-off section below shows.
A worked example with round numbers
Take a lender with a gross loan portfolio of 1,000,000, in any currency, spread across 400 active loans. On the reporting date, four groups of loans are late. Overdue amounts are principal only.
- Group A: 20 loans, each with an instalment 5 days late. Outstanding principal 50,000. Principal overdue 4,000.
- Group B: 8 loans, 20 days late. Outstanding principal 30,000. Principal overdue 3,000.
- Group C: 6 loans, 45 days late. Outstanding principal 30,000. Principal overdue 5,000.
- Group D: 4 loans, 120 days late. Outstanding principal 20,000. Principal overdue 8,000.
The results
- PAR 1 = (50,000 + 30,000 + 30,000 + 20,000) divided by 1,000,000 = 13%
- PAR 30 = (30,000 + 20,000) divided by 1,000,000 = 5%
- PAR 90 = 20,000 divided by 1,000,000 = 2%
Look at what the PAR 30 of 5% is saying: 50,000 of principal sits with borrowers more than a month behind, even though between them they have missed only 13,000 of principal payments. It also sits exactly on the commonly cited 5% line. Groups A and B are not in PAR 30 yet, but they are close: if Group B pays nothing in the next 10 days, its 30,000 crosses the 30-day mark and PAR 30 jumps to 8%. You can run your own figures through our loan portfolio calculator.
Arrears rate versus PAR: why the numbers differ
The arrears rate and PAR answer different questions, and on the same book they tell very different stories.
- Arrears rate = principal payments actually past due, divided by the gross loan portfolio. It measures missed payments.
- PAR = the full outstanding principal of late loans, divided by the gross loan portfolio. It measures exposure: the capital you could lose if those borrowers stop paying.
In the example above, principal overdue totals 20,000, so the arrears rate is 2%. PAR 1 is 13%, six and a half times higher, on the same book on the same day. A lender reporting only arrears looks far healthier than it is, because one missed instalment on a large loan adds a little to arrears and a lot to PAR.
Why the repayment rate can mislead
A repayment rate compares what was collected with what fell due. A book full of recently disbursed loans, with few instalments due yet, keeps it high while problems build underneath. Fast growth flatters PAR too: new loans swell the denominator before any of them can be late, so it is worth tracking PAR by disbursement month as well as across the whole book.
A sensible split: PAR 30 for weekly portfolio monitoring, PAR 90 and older buckets for provisioning, and arrears and collection rates to manage the collections team.
Write-offs, provisioning and how PAR can flatter a book
Provisioning and write-offs are separate steps, and both change how PAR should be read.
Provisioning
A loan loss provision sets aside part of the portfolio against loans you do not expect to recover in full. The usual method is an ageing schedule: each days-past-due bucket carries a higher percentage, so a loan 120 days late attracts a bigger provision than one 10 days late. The CGAP guidelines note that coverage for loans more than 180 days late may be close to 100%, and some regulators have required a full provision for instalments that far overdue. Analysts test the result with the risk coverage ratio, the loan loss allowance divided by PAR over X days. Your own buckets and percentages are set with your auditors and regulator and differ by country and licence type, so treat any figure you read online, including here, as something to check.
Write-offs
A write-off removes a loan from the gross portfolio and from the loan loss allowance once recovery is judged unlikely. Most lenders write off loans past a fixed number of days, with six months or a year overdue commonly cited, though policies vary. A write-off does not cancel the borrower's obligation and recoveries afterwards are not unusual, so written-off loans should stay in the collections queue.
The trap
Writing off late loans removes them from both the top and the bottom of the PAR formula. In the worked example, writing off Group D cuts the gross portfolio to 980,000, PAR 90 to zero and PAR 30 from 5% to about 3.1% (30,000 divided by 980,000), without one extra payment collected. A lender that writes off aggressively can report an excellent PAR 30 while quietly losing money. That is why analysts read PAR alongside the write-off ratio, the value of loans written off in a period divided by the average gross loan portfolio, and why a good system reports both from the same data.
How a loan system calculates PAR every day
Calculating PAR by hand once a month is manageable for a small book. Calculating it correctly every day, by branch, officer and product, is where software earns its keep. A well built loan system does roughly this each night:
- Close the day. Post every repayment received, whether cash, bank transfer, card or Mobile Money, before the calculation runs, so a borrower who paid in the evening is not flagged as overdue.
- Apply the allocation order. Split each payment across penalties, fees, interest and principal in the order the loan product defines. If penalties are paid first, a principal instalment can stay partly unpaid and days past due keep counting, even though the borrower paid the scheduled amount.
- Find the oldest unpaid instalment. Days past due is the reporting date minus the due date of the oldest principal instalment not fully paid, adjusted for any grace period or small-shortfall tolerance your policy allows.
- Snapshot every loan. Store outstanding principal, days past due, ageing bucket, and restructured and written-off flags for each loan on each date. Without daily snapshots you cannot reproduce last quarter's PAR when an auditor asks.
- Aggregate and compare. Roll up PAR 1, PAR 30 and PAR 90 by branch, loan officer, product and disbursement month, and highlight where PAR is rising fastest.
- Handle backdated entries. When a payment is recorded late, recalculate the affected dates and keep an audit trail of what changed and who changed it.
- Reconcile to the ledger. The gross portfolio in the PAR report should match the loan balance in the general ledger. We built Moyo Pay, our own dual-currency wallet, on a double-entry ledger for exactly this reason: every balance can be traced to the entries that produced it.
The same days-past-due data then drives the collections queue: who to call today, who gets a reminder, who is escalated. That is the core of debt collection software, and it is why PAR logic belongs inside the loan system rather than in a spreadsheet someone rebuilds at month end. The Growth Informer Loan and SACCO Management System, the loan, savings, shares and SACCO system we configure and build for each lender, is designed to report PAR 1, PAR 30 and PAR 90 by branch, officer and product.
What a system that calculates PAR automatically costs
Be honest about scale first. If you run one loan product with a few hundred loans, a disciplined spreadsheet or an off-the-shelf package may be all you need, and we will say so. Custom software makes sense when your products, repayment channels or reporting do not fit a package, or when per-user or per-loan licence fees start to outgrow the cost of owning the system. Our guide to custom versus off-the-shelf loan management software walks through that decision.
| What you need | Indicative price | What it covers |
|---|---|---|
| Loan management system | Loan products, schedules, repayments, daily PAR 1, 30 and 90, ageing, provisioning, restructured and write-off reports, branch and officer views | |
| SACCO or member-based savings and credit system | Member savings, shares and loans in one ledger, with PAR reporting on the loan book | |
| Repayment integration | Mobile Money, card or bank collections posted automatically before the nightly PAR run | |
| Support and changes after launch, per month | New reports, product rules and fixes from the team that built the system |
There is a reason not to wait: daily snapshots only exist from the day a system starts taking them, and rebuilding past PAR from spreadsheets is slow and rarely exact. Every project starts with a fixed quote before work begins and a 50/25/25 payment plan, and you own the source code and the data. The usual alternatives are a Western agency charging several times more for the same frameworks, or a marketplace freelancer who may not be around when your auditor asks why last quarter's PAR changed. We cost less because we operate from Kampala, not because we cut corners. We have 37 live website and app builds, and our fintech proof is products we built and run ourselves: Moyo Pay, a dual-currency wallet on a double-entry ledger with Mobile Money and USSD, and Growth Informer Business, our cloud POS, inventory and business platform. See what a full build involves on our loan management software development page, or, if you lend in Uganda, our microfinance software page.
Frequently asked questions
What is the PAR 30 formula?
PAR 30 is the outstanding principal of all loans with an instalment more than 30 days overdue, divided by the gross loan portfolio, multiplied by 100. Count the whole remaining principal of each late loan, not just the missed instalment, and leave out accrued interest, fees and penalties.
What is a good PAR 30 for a microfinance lender?
A PAR 30 below 5% is commonly cited as a benchmark for a healthy microfinance portfolio. It is a reference point rather than a rule, and it should be read alongside the write-off ratio and the restructured portfolio, because heavy write-offs or rescheduling can push PAR down without any money coming in.
Why is my arrears rate so much lower than my PAR?
The arrears rate counts only the principal payments actually missed, while PAR counts the full outstanding principal of any late loan. One missed instalment on a large loan adds a little to arrears and a lot to PAR, so PAR is usually the higher and more revealing number.
Should restructured loans be included in PAR?
The CGAP consensus guidelines define PAR without restructured or rescheduled loans and report them separately, but they ask lenders to state whether restructured loans are in their PAR figure, and some lenders include them automatically because they carry higher risk. Your reporting rules are set with your auditors and regulator, but a loan system should always flag restructured loans so rescheduling cannot quietly reset the clock on a problem loan.
How much does a loan system that calculates PAR automatically cost?
A custom loan management system with daily PAR, ageing, provisioning and write-off reports typically comes in at , depending on your loan products, integrations and reporting. You get a fixed quote before any work starts, pay on a 50/25/25 plan and own the source code and data.