Predicting risk of credit default using discriminant approach: Case of tribal dairy farmers of Jharkhand Platue

Abstract

The credit support to the smallholder tribal families for the dairy development is an important source of viable mix of livelihood options and improving quality of life. The study has investigated the localized social factors that can be used by the credit institutions in risk rating a farmer customer. The study has suggested that lower income from crop production, dairy and off-farm activities coupled with high expenditure proportionate to income and smaller number of earning adults in the family leaves only a smaller surplus with farmers making them to be a defaulter. The derived classification analysis has cross-verified the predicted variable and has found that the group classified correctly by 68.3% as factors of default. Thus, model was found valid in predicting a defaulter of loan-repayment based on the localized factors precisely. The study will address the concern of the credit institution in advance to assess the credit risk capital and risk adjusted outcome for serving a larger group of smallholders’ community.