Title: Frailty correlated default on retail consumer loans in Zimbabwe

Authors: Richard Chamboko; Jorge M. Bravo

Addresses: NOVA IMS Information Management School, New University of Lisbon, Portugal ' NOVA IMS Information Management School, New University of Lisbon, Portugal

Abstract: There has been increasing availability of consumer credit in Zimbabwe, yet the credit information sharing systems are not as advanced. Using frailty survival models on credit bureau data from Zimbabwe; this study investigates the possible underestimation of credit losses under the assumption of independence of default event times. The study found that adding a frailty term significantly improved the models, thus indicating the presence of unobserved heterogeneity. The major policy recommendation is for the regulator to institute appropriate policy frameworks to allow robust and complete credit information sharing and reporting as doing so will significantly improve the functioning of the credit market.

Keywords: default clustering; frailty; credit risk; expected losses; unobserved heterogeneity; survival models; Zimbabwe.

DOI: 10.1504/IJADS.2019.100436

International Journal of Applied Decision Sciences, 2019 Vol.12 No.3, pp.257 - 270

Received: 24 May 2018
Accepted: 09 Nov 2018
Published online: 28 Jun 2019 *

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