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This study aims to formulate a behavioural credit scoring models for Indian small and medium enterprises (SME) entrepreneurs using certain behavioural and psychological constructs. Two separate models are built which can predict the credit default and wilful default of the borrowers, respectively. This research was undertaken to understand whether certain psychological and behavioural factors can significantly predict the borrowers’ credit and wilful default.Design/methodology/approachA questionnaire survey was undertaken by SME entrepreneurs of two Indian states, i.e. Uttar Pradesh and Maharashtra. The questionnaire had two dependent variables: wilful default and credit default and nine independent variables. The questionnaire reliability and validity were ensured through confirmatory factor analysis (CFA) and further a model was built using logistic regression.FindingsThe results of this study have shown that certain behavioural and psychological traits of the borrowers can significantly predict borrowers’ default. These variables can be used to predict the overall creditworthiness of SME borrowers.Practical implicationsThe findings of this research indicate that using behavioural and psychological constructs, lending institutions can easily evaluate the credit worthiness of those borrowers, who do not have any financial and credit history. This will enhance the capability of financial institutions to evaluate opaque SME borrowers.Originality/valueThere are very few numbers of studies which have considered predicting the credit default using certain psychological variables, but with respect to Asian market, and especially India, there does not exist a single significant study which has tried to fulfil such research gap. Also, this is the first study that has explored whether certain psychological factors can predict the wilful default of the borrowers. This is one of the most significant contributions of this research.
Journal of Entrepreneurship in Emerging Economies – Emerald Publishing
Published: Jan 20, 2023
Keywords: Credit scoring; Psychometric; Behavioural traits; SME credit scoring; Wilful default; Small and medium-sized enterprises; Entrepreneurial behaviour; Personality traits; Entrepreneurial finance
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