Abstract
Peer to Peer lending has the capacity to transforming the mass banking industry worldwide but credit risk modelling remains the core challenge of the platform. The general objective of this study is to analyse the credit default risk of borrowers of Peer to Peer online lending platform based in Australia. Specific objectives include the following; To identify the loan information applicants provide to request for a loan facility, Using RateSetter.com published data on loans to predict the likelihood of credit risk of the platform. In this article, we employed binary logistic regression model to assess the likelihood of loan default. Based on the mathematical approach and the nature of dependent variable, we grouped variables into categorical, numerical-continuous as well as binary. The dependent variable is dichotomous whilst real-life dataset was retrieved from a popular and competitive online lending platform based in Australia from 2014-2017. We identified that early repayment, no mortgage tenant; car, debt consolidation, investment, major events, professional services, 3-year loan duration, 4-year loan duration, interest rate and income have significant influence on borrowers’ likelihood to default. Our empirical coefficients suggest that, there is 83.4% likelihood of borrowers default rate and hence recommended a critical examination of borrowers’ information presented to the platform. This paper fulfills the need to examine the credit information provided by loan applicants. Similarly, it endeavors to predict the possibility of borrowers default risk and the reasons contributing to online lending credit default risk. Keywords: Credit Risk, Peer To Peer Online Lending, Binary Logistic Regression DOI : 10.7176/RJFA/10-2-01
Highlights
Over the past decade, social lending likewise acknowledged as peer to peer lending has become a striking field of interest among researchers and financial experts
The sustainability of online lending depends on the flexibility of service providers to devise a strategy of addressing risk management practices due to information asymmetry that arises among lenders and borrowers
E
Summary
Social lending likewise acknowledged as peer to peer lending has become a striking field of interest among researchers and financial experts. Prodigious majority of borrowers with low net-worth and borrow comparatively modest amounts, currently have the chance to get finance via the P2P marketplace platform. It encourages, intra-community, regional and global lending and borrowing. The sustainability of online lending depends on the flexibility of service providers to devise a strategy of addressing risk management practices due to information asymmetry that arises among lenders and borrowers. The trustworthiness of both parties is unknown to each other
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
