An Empirical Analysis Of The Default Risk Of The Informal Lending

This study empirically analyzes the underlying factors contributing to the default rate of informal lending. This paper adopts snowball sampling interview to collect data and uses the logistic regression model to explore the specific factors. The results of these analyses validate the explanation of how the informal lending differs from the commercial loan. Factors that contribute to the default rate have particular attributes, while sharing some similarities with commercial bank or FICO credit scoring Index.Finally, our concluding remarks draw some inferences from empirical analysis and speculate as to what this may imply for the role of formal and informal financial sectors. In this study, the following three questions are answered:(1) Does the default rate of the informal lending differ significantly among the groups with the different relationship between lenders and borrowers? According to the empirical analysis in Chapter 3, the default rate of lenders and borrowers who are relatives is significantly lower than that of among friends.(2) What are the key characteristics of the borrowers lenders take into consideration to ensure the lower default rate? According to the analysis in Chapter 3, character, capability, marital status, health of borrowers are placed high value on by lenders during the informal lending.(3) How about the difference between informal lending and commercial lending and FICO? According to the Chapter 5, the differences among these three kinds are elaborated to illuminate the policy-maker to make progress in the area of the formal and informal finance sectors.Finally, this study also points out the deficiencies ranging from the techniques of data collection to the measurement of the latent variables, such as the character, capability of the borrower. Meanwhile, in this paper, potential promising ideas are stated in the end for future research in the area of informal lending.