Effect of Psychological Factors on Credit Risk: A Case Study of the Microlending Service in Mongolia

• Main Authors: Mandukhai Ganbat, Erdenebileg Batbaatar, Ganzul Bazarragchaa, Togtuunaa Ider, Enkhjargalan Gantumur, Lkhamsuren Dashkhorol, Khosgarig Altantsatsralt, Mandakhbayar Nemekh, Erdenebaatar Dashdondog, Oyun-Erdene Namsrai
• Format: Article
• Language: English
• Published: MDPI AG 2021-04-01
• Series: Behavioral Sciences
• Subjects: behavior economics; psychological factors; determinants; the psychology of personality; psychometric analysis; economic factors
• Online Access: https://www.mdpi.com/2076-328X/11/4/47

This paper determined the predefining factors of loan repayment behavior based on psychological and behavioral economics theories. The purpose of this research is to identify whether an individual’s credit risk can be predicted based on psychometric tests measuring areas of psychological factors such as effective economic decision-making, self-control, conscientiousness, selflessness and a giving attitude, neuroticism, and attitude toward money. In addition, we compared the psychological indicators to the financial indicators, and different age and gender groups, to assess whether the former can predict loan default prospects. This research covered the psychometric test results, financial information, and loan default information of 1118 borrowers from loan-issuing applications on mobile phones. We validated the questionnaire using confirmatory factor analysis (CFA) and achieved an overall Cronbach’s alpha reliability coefficient greater than 0.90 (α = 0.937). We applied the empirical data to construct prediction models using logistic regression. Logistic regression was employed to estimate the parameters of a logistic model. The outcome indicates that positive results from the psychometric testing of effective financial decision-making, self-control, conscientiousness, selflessness and a giving attitude, and attitude toward money enable individuals’ debt access possibilities. On the other hand, one of the variables—neuroticism—was determined to be insignificant. Finally, the model only used psychological variables proven to have significant default predictability, and psychological variables and psychometric credit scoring offer the best prediction capacities.