IDEAS home Printed from https://ideas.repec.org/a/ags/ijameu/329832.html
   My bibliography  Save this article

A Credit Scoring Model for Farmer Lending Decisions in Rural China

Author

Listed:
  • Mao, Junxuan
  • Zhu, Qianyu
  • Wachenheim, Cheryl J.
  • Hanson, Erik D.

Abstract

A cooperative mutual fund is an important cooperative-based financing option for farmers in China. As its farmer-borrowers often do not have formal records, a lending decision generally relies heavily on subjective evaluation. This experienced-based judgment has been relatively accurate but is less useful as seasoned loan officers retire or as growth necessitates hiring novice lenders. A credit scoring model was developed to capture the knowledge of experienced loan officers and thereby assist those more novice. The model evaluates a farmer’s credit standing based on family background, willingness to repay, repayment capacity, and relationships. The analytic hierarchy process is used to determine factor weighting and the model is empirically tested. The model’s predictive accuracy is high, with most error attributed to core indicators in the model that have strong veto power. Therefore, we suggest supplementing the credit scoring model with a crucial indicator negation system.

Suggested Citation

  • Mao, Junxuan & Zhu, Qianyu & Wachenheim, Cheryl J. & Hanson, Erik D., 2020. "A Credit Scoring Model for Farmer Lending Decisions in Rural China," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 8(4), August.
    • Handle: RePEc:ags:ijameu:329832
    DOI: 10.22004/ag.econ.329832
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/329832/files/doi_10.5836_ijam_2020-08-134.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.329832?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. José Francisco Martínez Sánchez & Gilberto Pérez Lechuga, 2016. "Assessment of a credit scoring system for popular bank savings and credit," Contaduría y Administración, Accounting and Management, vol. 61(2), pages 391-417, Abril-Jun.
    2. D. J. Hand & W. E. Henley, 1997. "Statistical Classification Methods in Consumer Credit Scoring: a Review," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 160(3), pages 523-541, September.
    3. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    4. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
    5. Thomas L. Saaty & Luis G. Vargas, 2012. "Models, Methods, Concepts & Applications of the Analytic Hierarchy Process," International Series in Operations Research and Management Science, Springer, edition 2, number 978-1-4614-3597-6.
    6. Sharma, Manohar & Zeller, Manfred, 1997. "Repayment performance in group-based credit programs in Bangladesh: An empirical analysis," World Development, Elsevier, vol. 25(10), pages 1731-1742, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhu, Qianyu & Lyu, Zhongyao & Long, Yan & Wachenheim, Cheryl J., 2022. "Adoption of mobile banking in rural China: Impact of information dissemination channel," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aitziber Olasolo, 2021. "Credit Risk Elements for Small and Medium-Sized Enterprises: The Case of Spain," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 192-219.
    2. Simon Cornée, 2014. "Soft Information and Default Prediction in Cooperative and Social Banks," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 89-103, June.
    3. Dongwoo Kim & Hoon Jung, 2025. "Impact of economic crises on corporate‐banking relationship: Evidence from Korea," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(1), pages 195-205, January.
    4. Rahman Ashiqur & Rahman M. Twyeafur & Belas Jaroslav, 2017. "Determinants of SME Finance: Evidence from Three Central European Countries," Review of Economic Perspectives, Sciendo, vol. 17(3), pages 263-285, September.
    5. Jarko Fidrmuc & Philipp Schreiber & Martin Siddiqui, 2018. "Intangible Assets and the Determinants of a Single Bank Relation of German SMEs," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 4(1), pages 5-30.
    6. Hans Degryse & Steven Ongena, 2004. "The Impact of Competition on Bank Orientation and Specialization (new titel: The impact of competition on bank orientation)," CESifo Working Paper Series 1119, CESifo.
    7. Cole, Rebel & Mehran, Hamid, 2007. "What can we learn from privately held firms about executive compensation?," MPRA Paper 4710, University Library of Munich, Germany.
    8. Udell, Gregory F., 2008. "What's in a relationship The case of commercial lending," Business Horizons, Elsevier, vol. 51(2), pages 93-103.
    9. Mkhaiber, Achraf & Werner, Richard A., 2021. "The relationship between bank size and the propensity to lend to small firms: New empirical evidence from a large sample," Journal of International Money and Finance, Elsevier, vol. 110(C).
    10. Uchida, Hirofumi & Udell, Gregory F. & Yamori, Nobuyoshi, 2012. "Loan officers and relationship lending to SMEs," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 97-122.
    11. Franklin Allen & James McAndrews & Philip Strahan, 2002. "E-Finance: An Introduction," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(1), pages 5-27, August.
    12. Foroughfard, Rasoul & Rahmati, Mohammad, 2019. "The Effect of Relationship Lending on Loan Contract Terms," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(2), pages 133-157, April.
    13. Hakimi, Abdelaziz & Hamdi, Helmi, 2013. "The duration of bank relationships and the performance of Tunisian firms," MPRA Paper 55754, University Library of Munich, Germany, revised 2014.
    14. Andrea Bellucci & Alexander Borisov & Germana Giombini & Alberto Zazzaro, 2015. "Collateral and Local Lending: Testing the Lender-Based Theory," IAW Discussion Papers 119, Institut für Angewandte Wirtschaftsforschung (IAW).
    15. Ravn, Søren Hove, 2016. "Endogenous credit standards and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 89-111.
    16. Li, Bo & Cheng, Yue & Tian, Guangning, 2024. "Bank competition and firm asset- debt maturity mismatch: Evidence from the SMEs in China," Research in International Business and Finance, Elsevier, vol. 69(C).
    17. Allen N. Berger & Christa H. S. Bouwman & Lars Norden & Raluca A. Roman & Gregory F. Udell & Teng Wang, 2024. "Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 484-551.
    18. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    19. Degryse, Hans & Ongena, Steven, 2007. "The impact of competition on bank orientation," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 399-424, July.
    20. Behr, Patrick & Sonnekalb, Simon, 2012. "The effect of information sharing between lenders on access to credit, cost of credit, and loan performance – Evidence from a credit registry introduction," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3017-3032.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:ijameu:329832. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/ifmaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.