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Title:Delinquency and default risk modelling of microfinance in Ghana
Authors:Baidoo, Isaac Kwame
Arku, Dennis
Periodical:Ghanaian journal of economics: a journal of the African Finance and Economics Consult (ISSN 2309-8945)
Geographic term:Ghana
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 identify 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 distinguish 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. Bibliogr., sum. [Journal abstract]