A benchmark based AHP model for credit evaluation

Tarik Aouam, Hafsa Lamrani, Samir Aguenaou, Ali Diabat

    Research output: Contribution to journalArticle

    Abstract

    In this work, a credit assessment and decision-making model is developed for financial institutions to evaluate the credibility of potential borrowers. Typically, financial institutions keep records of individuals and enterprises that have been evaluated as credible based on multiple internal criteria and were granted a loan. Among these borrowers, some turn out to be solvent, i.e., they are able to repay their debts on time and others insolvent. The present paper proposes a two-stage procedure for development banks to evaluate and assess credit risk of local communes in Morocco. In the first stage, a benchmark based analytical hierarchy process (AHP) is developed to represent subjective decisions based on knowledge and experience of decision-makers. The benchmark is a small yet representative and diversified set of solvent communes selected by the decision-maker against which a potential borrower can be compared, according to a set of qualitative and quantitative criteria. Once a potential borrower has been evaluated as acceptable, the second stage applies a discriminant analysis (DA) model to classify the borrower as either solvent, in which case the loan is granted or insolvent. The proposed model is applied and validated using a real case study from a Moroccan development bank.

    Original languageEnglish (US)
    Pages (from-to)151-166
    Number of pages16
    JournalInternational Journal of Applied Decision Sciences
    Volume2
    Issue number2
    DOIs
    StatePublished - Jun 1 2009

    Fingerprint

    Credit evaluation
    Process model
    Benchmark
    Analytical hierarchy process
    Financial institutions
    Loans
    Decision maker
    Credit risk
    Decision-making model
    Credit
    Credibility
    Debt
    Morocco
    Discriminant analysis

    Keywords

    • AHP
    • Analytical hierarchy process
    • Benchmark, linear discriminant analysis
    • Credit evaluation
    • Credit risk

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Strategy and Management
    • Management Science and Operations Research
    • Information Systems and Management

    Cite this

    A benchmark based AHP model for credit evaluation. / Aouam, Tarik; Lamrani, Hafsa; Aguenaou, Samir; Diabat, Ali.

    In: International Journal of Applied Decision Sciences, Vol. 2, No. 2, 01.06.2009, p. 151-166.

    Research output: Contribution to journalArticle

    Aouam, Tarik ; Lamrani, Hafsa ; Aguenaou, Samir ; Diabat, Ali. / A benchmark based AHP model for credit evaluation. In: International Journal of Applied Decision Sciences. 2009 ; Vol. 2, No. 2. pp. 151-166.
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