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Modelling Credit Risk for Personal Loans Using Product-Limit Estimator

Author(s): Okumu Argan Wekesa | Mwalili Samuel | Mwita Peter

Journal: International Journal of Financial Research
ISSN 1923-4023

Volume: 3;
Issue: 1;
Date: 2012;
Original page

A product- limit approach was adopted to estimate time to default for male and female loan applicants. For each group, a sample of 250 applicants was observed for a 30 months. The life of the account is measured from the month it was opened until the account becomes ‘bad’ or it is closed or until the end of observation. The account is considered bad if payment is not made for two consecutive months in line with the industry practice. If the account does not miss two payments and is closed or survives beyond the observation period, it is considered to be censored. The results showed that there is no significant difference between male and female applicants in terms of their survival times and hazard rates.
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