The applicability of a uniform credit scoring model as an alternative to existing consumer loan application evaluation process

• Main Authors: Miguel, Jurdayne, Parian, Arjay, Leong, Audric, Pages, Andrew
• Format: text
• Language: English
• Published: Animo Repository 2011
• Subjects: Loans, Personal; Loans; Consumer credit; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18494
• Institution: De La Salle University

This research paper talks about the applicability of a uniform credit scoring model to complement the existing consumer loan evaluation process in the NCR, Philippines. Based on research, loan officers are still using the conventional way of lending out money to consumers which is the judgmental approach, wherein loan officers use scientific intuition based on past experiences/ records. This approach is not 100% efficient, which is why the Statistical Approach was made. The statistical approach or quantitative approach is the tool that will quantify the characteristics of the borrower. In this case, the efficiency rate is expected to increase which will cut losses and will optimally bring profits. The researchers concentrated on the general binary logit model which will give an answer of either 1 or 0 1 signifies the Acceptance of Loan Application, while 0 signifies the Rejection of Application. This model is designed to quantify the characteristics of the borrower. Based on the articles written by scholars, the researchers found out that the most important variables that are needed were generally the income and expenditure of the applicant. The researchers used the 2006 Family Income and Expenditure Survey from NSO. These variables are needed to show the capacity of the borrower to pay back the debt given its cash flow. After running the data through the use of Stata 10 Data Analysis and Statistical Software, the results shown were illogical. Expenditure, was deemed insignificant, wherein in fact, it is one of the most important variable. On the other hand, same variables were used to fill-in the mock loan application forms. These forms were later on assessed by the loan officers. Results show that only 8.82% were approved and 91.18% were rejected. This only shows that the model introduced in this study may still be further developed to optimally fit the society's standards and later be used as a complementary tool for lenders.