Credit Risk Prediction for Peer-To-Peer Lending Platforms : An Explainable Machine Learning Approach
Small and medium enterprises face the challenge of obtaining start-up fund due to the strict rules and conditions set by banks and financial institutions. The plight yields to the growth in popularity of online peer-to-peer lending platforms which are an easier way to obtain loan as they have fewe...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | en |
| Published: |
UNIMAS Publisher
2022
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| Subjects: | |
| Online Access: | http://ir.unimas.my/id/eprint/40709/1/Credit%20Risk%20-%20Copy.pdf http://ir.unimas.my/id/eprint/40709/ https://publisher.unimas.my/ojs/index.php/jcsi/article/view/4761 |
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| Summary: | Small and medium enterprises face the challenge of obtaining start-up fund due to the strict rules
and conditions set by banks and financial institutions. The plight yields to the growth in popularity of online
peer-to-peer lending platforms which are an easier way to obtain loan as they have fewer rigid rules.
However, high flexibility of loan funding in peer-to-peer lending comes with high default probability of loan
funded to high-risk start-ups. An efficient model for evaluating credit risk of borrowers in peer-to-peer lending
platforms is important to encourage investors to fund loans and justify the rejection of unsuccessful
applications to satisfy financial regulators and increase transparency. This paper presents a supervised
machine learning model with logistic regression to address this issue and predicts the probability of default
of a loan funded to borrowers through peer-to-peer lending platforms. In addition, factors that affect the credit
levels of borrowers are identified and discussed. The research shows that the most important features that
affect probability of default are debt-to-income ratio, number of mortgage account, and Fair, Isaac and
Company Score. |
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