Title: Inclusion of peer group and individual low-income earners in M-Shwari micro-credit lending: a hidden Markov model approach

Authors: Davis Bundi Ntwiga; Carolyne Ogutu; Michael Kiura Kirumbu

Addresses: School of Mathematics, University of Nairobi, P.O. Box 30197 – 00100, Nairobi, Kenya ' School of Mathematics, University of Nairobi, P.O. Box 30197 – 00100, Nairobi, Kenya ' School of Sciences and Engineering, Daystar University, P.O. Box 20146 – 00100, Nairobi, Kenya

Abstract: The M-Shwari micro-credit lending system has excluded the low income earners as they lack good financial options due to volatile and fluctuating income. This paper proposes a decision support system for credit scoring and lending of the low income earners who are customers of M-Shwari using the hidden Markov model. The model emits the credit scores of the customers, both for the peer groups and the individual customers. The learning and training of the model utilises the customers' socio-demographics, telecommunication characteristics and account activities. The peer groups have higher credit scores and are more attractive to offer credit facilities using M-Shwari when compared to the individual borrowers.

Keywords: peer group; low-income earners; electronic finance; M-Shwari; micro-credit lending; hidden Markov model; HMM; individual.

DOI: 10.1504/IJEF.2018.092195

International Journal of Electronic Finance, 2018 Vol.9 No.2, pp.121 - 133

Received: 09 Jun 2017
Accepted: 04 Feb 2018

Published online: 24 May 2018 *

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