Automated credit decision process - an insight into developing a credit-scoring model within the Nepalese banking sector

Sharma, Satish, Harvey, Jackie and Robson, Andrew (2012) Automated credit decision process - an insight into developing a credit-scoring model within the Nepalese banking sector. International Journal of Decision Sciences, Risk and Management, 4 (3/4). pp. 233-253. ISSN 1753-7177

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Official URL: http://dx.doi.org/10.1504/IJDSRM.2012.053380

Abstract

There has been significant growth post-2000 in consumer credit within transition economies. Credit scoring, established within Western institutions, has the potential to be used to assess consumer creditworthiness here. This paper presents challenges and complexities relating to credit-scoring model development within the Nepalese banking sector. The research incorporates a mixed methods approach, involving model development using secondary data, supported by five in-depth interviews involving lending managers. A model was developed deploying binary logistic regression comprising six customer characteristics. Its overall ability to predict known outcome was high, particularly repayment success, although challenges remain in terms of predicting failure, pointing to a relative absence of current data on such customers. Implementation challenges also exist, reliance on traditional judgement prevails, together with ignorance of possible approaches to modelling. Decision overrides occur due to conflict between restricting defaulting customers and growth targets, traditional practice retention and desire to demonstrate expertise amongst lending managers.

Item Type: Article
Uncontrolled Keywords: consumer credit; Nepal; banking industry; credit scoring; credit decisions; mixed methods research; binary logistic regression; scorecard implementation; Nepal; transition economies; creditworthiness; modelling; bank lending
Subjects: N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Satish Sharma
Date Deposited: 18 Jan 2016 14:19
Last Modified: 08 May 2017 10:38
URI: http://nrl.northumbria.ac.uk/id/eprint/25498

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