n Ghanaian Journal of Economics - Delinquency and default risk modelling of microfinance in Ghana
|Article Title||Delinquency and default risk modelling of microfinance in Ghana|
|© Publisher:||The African Finance & Economics Consult|
|Journal||Ghanaian Journal of Economics|
|Affiliations||1 University of Ghana and 2 University of Ghana|
|Publication Date||Dec 2015|
|Pages||70 - 108|
|Keyword(s)||Default risk, Delinquency, Logit model and Microfinance in Ghana|
This study examines the risk factors of loan defaults in the microfinance industry in Ghana and develops a model for assessing credit worthiness of customers in that sector. A binomial logistic model was fitted to a dataset of 472 customers. The findings identified that the loan officer, personal guarantors, age of customer, type of residence, type of collateral and assessment are key predictors of default. a test of the full model against a baseline model was statistically significant, indicating that the predictors, as a set, reliably distinguished defaulters and non-defaulters. The Receiver Operating Characteristic (ROC) that measures the sensitivity and specificity of the model was significant. Using a hold out sample, the model is able to classify defaulters and non-defaulters with at least 80% accuracy. The model could serve as a tool to manage and improve loan application decisions and ultimately improve enterprise profitability of microfinance institutions.
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