1887

n Ghanaian Journal of Economics - Delinquency and default risk modelling of microfinance in Ghana

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Abstract

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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/content/ghajecon/3/1/EJC184831
2015-12-01
2016-12-08
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