Machine Learning for Credit Risk Prediction: A Systematic Literature Review
Author:
Noriega Jomark Pablo12ORCID, Rivera Luis Antonio13ORCID, Herrera José Alfredo14ORCID
Affiliation:
1. Departamento Académico de Ciencia de la Computacion, Universidad Nacional Mayor de San Marcos, Decana de América, Lima 15081, Peru 2. Financiera QAPAQ, Lima 150120, Peru 3. Centro de Ciências Exatas e Tecnologia, Universidade Estadual do Norte Fluminense Darcy Ribeiro, Campos dos Goytacazes 28013-602, Brazil 4. Programme in Biotechnology, Engineering and Chemical Technology, Universidad Pablo de Olavide, 41013 Sevilla, Spain
Abstract
In this systematic review of the literature on using Machine Learning (ML) for credit risk prediction, we raise the need for financial institutions to use Artificial Intelligence (AI) and ML to assess credit risk, analyzing large volumes of information. We posed research questions about algorithms, metrics, results, datasets, variables, and related limitations in predicting credit risk. In addition, we searched renowned databases responding to them and identified 52 relevant studies within the credit industry of microfinance. Challenges and approaches in credit risk prediction using ML models were identified; we had difficulties with the implemented models such as the black box model, the need for explanatory artificial intelligence, the importance of selecting relevant features, addressing multicollinearity, and the problem of the imbalance in the input data. By answering the inquiries, we identified that the Boosted Category is the most researched family of ML models; the most commonly used metrics for evaluation are Area Under Curve (AUC), Accuracy (ACC), Recall, precision measure F1 (F1), and Precision. Research mainly uses public datasets to compare models, and private ones to generate new knowledge when applied to the real world. The most significant limitation identified is the representativeness of reality, and the variables primarily used in the microcredit industry are data related to the Demographic, Operation, and Payment behavior. This study aims to guide developers of credit risk management tools and software towards the existing ability of ML methods, metrics, and techniques used to forecast it, thereby minimizing possible losses due to default and guiding risk appetite.
Subject
Information Systems and Management,Computer Science Applications,Information Systems
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