1.4 Objectives of the study
I. To determine borrower-related factors hindering effectiveness of credit scoring models used by financial institutions’ in kericho munipa;ity
II. To investigate human related factors hindering application of credit scoring models used by credit lenders while advancing loans
III. To determine the efficacy of credit scoring models used by commercials banks in kericho municipality
1.5 Research questions
I. What are borrower-related factors hindering effectiveness of credit scoring models used by financial institutions’ in kericho munipa;ity
II. What are human related factors hindering application of credit scoring models used by credit lenders while ...view middle of the document...
9 Conceptual framework
Conceptual framework is set of coherent ideas or concepts organized in a manner that makes them easy to communicate to others. A framework can help us to explain why we are doing a project in a particular way. It can also help us to understand and use the ideas of others who have done similar things. Below is framework that explains to us how to establish the factors hindering the effectiveness of loans scoring models in Kenya.
Dependent variables independent variable
Borrower related factors
The borrower related factors may be economic, or attitudinal. Economic factors include low employment income which has an effect on the ability to qualify for credit facilities offered by mainstream credit institutions. Attitudinal factors may include fear of borrowing especially from mainstream credit institutions.
Lender related factors include the terms and conditions of credit facilities in particular the interest charged, repayment terms, security/collateral requirements and unwillingness to lend to particular classes of borrowers due to credit risk considerations.
Human related factors
These are the human effects on the scoring models which affect the effectiveness of the scores obtained by the scoring models hence affecting the entire credit worthiness of the customers. These include corruption, nepotism and other human related factors.
Credit scoring models
Credit scoring models are used globally to process a variety of credit products (including SME loans). According to knowledgeable experts such as the Credit & Management
Systems, Inc, models offer considerable institutional and economic benefits including:
• Speed – statistical scoring models are fully automated and allow for faster, more
efficient credit decisions. Lesser automated models still save substantial time and
• Accuracy – if applied consistently with proven predictive factors, models can be
• Quantifiable process – creditors no longer analyze one credit at a time; data is
easily captured and client factors are compared with desired measures and peer
groups, which is important for efficient SME evaluations; it is also less subjective.
• Fewer bad debts – when managed effectively, good models result in fewer credit
problem loans; loan defaults are predicted with greater certainty so high vs. low
risk requests are clearly distinguished; it also enhances portfolio management.
• Regulatory oversight – validated scoring models are routinely approved by
regulators and will play a key role with Basel II IRB approach.
RESEARCH DESIGN AND METHODOLOGY
This chapter explains the sampling procedures which will be adopted, the research design, methods of data collection, data analysis and interpretation and the presentation of the data.
3.1 Research Design
This study will adopt a survey design. This design involved describing of the unit in details and...