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Management Consulting Research, Vol.

16, No. 2, May 2016, pp. 37-46 ISSN:1598-172X

Is non-financial information important in small business credit ratings? *

Yun, Sang-Yong ** Kang,

One) Man-su *** Lee, Hyung-
Tak ****

This study uses data such as credit information and credit rating ratings for small businesses from 16 regional credit guarantee foundations nationwide that provide financial support to small

business owners to determine what kind of relationship (predictive power) the differences in information characteristics have with the credit risk of small business owners. It has been verified that

First, the personal CB rating (external rating information) and the internal information of local news reports are divided into three groups: non-additional ratings and additional ratings applied. As

a result of examining whether there is a significant relationship with occurrence, it was found that the current level of non-financial information acquired/held by the local Shinbo is not very helpful

in managing credit risk for small businesses beyond external ratings. That is, out of the three information characteristic classifications, credit risk management using personal CB rating, which is

external rating information, had the highest predictive power, and among the internal information, the model rating with additional points applied including additional points, which can be called

non-financial information for small businesses, was the model rating without additional points. This is because it has been shown to have a relatively lower default predictive power. This suggests

that it is important for financial institutions to not only discuss the necessity and benefits/costs of relational finance in the future, but also consider what characteristics of non-financial information

should be obtained to secure the efficiency of relational finance. It means that it is time to newly and specifically seek the evolutionary direction of the SME credit evaluation method.

| Keywords | Small business, credit risk, credit rating, non-financial information, relational finance, big data

We support rational financial transactions. However, unless the problem of information

I. Introduction
asymmetry in financial transactions is resolved, it is not an easy task to enable financially

The financial market connects those with surplus funds and those who want to borrow underprivileged credit customers to procure funds at a reasonable level in the financial

due to lack of funds, and financial institutions play a role in ensuring the promised returns to market.

the fund providers by selecting the safest and most profitable demanders of funds. Therefore, Currently, domestic financial institutions evaluate the creditworthiness of individual or

it will not be difficult for large-scale and high-credit money buyers to secure liquidity from the corporate customers by rating them based on various quantitative credit information provided

financial market, but small-scale and poor credit users often receive poor treatment in raising by the National Banking Association and the private credit bureau (CB). Although this

funds in the financial market. In the end, there is an excess of finance on one side of the quantitative information has the advantage of being easy to objectify, it also has a limitation

financial market and a shortage of finance on the other side. In addition, under these in that it is based on subjective evaluation information about the past and current status such

circumstances, there are frequent cases in which we have no choice but to bear unreasonable as managerial ability, collateral ability, and past credit transaction fidelity rather than the

financial costs due to the asymmetry of information between the parties to a financial future business performance of a company. In the end, as a solution to the financial exclusion

transaction. of problem caused by this, relational banking 1) between financial institutions and companies

has been proposed to utilize various credit information, but financial institutions are actively

implementing it due to management costs and time issues. It is not easy to do, and it is already financial

* This thesis was researched with support from the Chosun University Academic Research Grant in 2015. **

Professor of Economics, Chosun University (syyun@chosun.ac.kr), first author *** Senior Researcher, Korea

Credit Guarantee Foundation (jazzmusi@koreg.or,kr), co-author **** Professor of Business Administration,

Keimyung University (htlee) @kmu.ac.kr), corresponding author

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Management Consulting Research Vol. 16 No. 2 May 2016

Lazy banking, which lends only with hard information 2) using collateral and credit ratings, is If you can manage and analyze systematically, this is because it will be able to provide useful

widely used throughout the government, so there is little incentive for financial institutions to information for stable credit transactions with these low-credit customers in the future. And

utilize it. 3) In other words, the need for relational finance is particularly emphasized for SMEs this is because, as a result, financial institutions will be able to significantly reduce the cost

and small business owners who do not have sufficient financial information. Based on burden of customer credit risk management, as well as significantly improve the timeliness

quantitative information, it is dependent on external credit ratings provided by the Credit and effectiveness of financial support considering the characteristics of customers. If so, how

Bureau (CB), which quantifies the size of credit risk through statistical analysis and displays much is the customer's credit information currently used by financial institutions helping them

the score or rating. As a result of the credit evaluation based on the results of the credit manage their credit risk amid these changes in the financial environment, and if so, what

evaluation, they are paying relatively high interest rates. 4) characteristics of credit information can help manage their credit risk? It is necessary to

examine whether the information is useful and what information should be additionally

considered for more effective credit risk management. And based on this, at least, it will be

necessary to discuss ways to improve the financial environment for small businesses,

Therefore, this study aims to focus on the credit evaluation method of small and medium- regarding how credit risk management for small businesses should be carried out in the

sized enterprises (SMEs) that are victims of financial exclusion in the domestic financial future. In this regard, this study aims to examine the usefulness of credit risk management for

market, especially small business owners, who account for a significant proportion of them. small business owners who have high utilization value of non-financial credit information

This is because domestic small business owners have a relatively poor financing environment according to information characteristics. To this end, this study utilized the basic information

compared to medium and large companies, and thus depend to a large extent on the financial of small business owners and credit risk data such as past bankruptcy history held by 16

capacity of individual managers. · This is because it was considered that there is a need to be regional credit guarantee foundations nationwide (hereafter referred to as local Shinbo), and

conducted in a method different from the credit evaluation method of large corporations. In mainly targeted medium and large companies. Going beyond the scope of previous

addition, it is difficult to obtain the financial information and non-financial data used in the studies that have studied whether hard information has a meaningful relationship with credit

corporate credit evaluation model in the small business area, and it is difficult to guarantee risk, we directly compare the different characteristics of credit information for small business

the reliability of the sales book. This is because there is a need to use various non-financial owners to see what kind of difference in predictive power they show on their credit risk. The

information together. In fact, credit evaluation methods for small business owners are rapidly structure of this study is as follows. First, the background and purpose of this study are

changing along with the recent changes in the financial market environment. In other words, described in Chapter 1, related prior studies are summarized in Chapter 2, and in Chapter 3,

with the growth of the fintech industry5) , non-financial companies such as IT and distribution the results of empirically comparing the credit risk predictive power of each information

are trying to enter the financial industry, which is drawing attention as an innovative trend characteristic and the importance of each information characteristic. In summary, Chapter

that can change the game of the financial industry at home and abroad. Furthermore, these 4 describes the conclusion and policy implications.

changes are expected to significantly improve overall market efficiency by resolving information

asymmetry in the future financial market and reducing transaction costs. In particular, resolving

the information asymmetry problem in the financial market for SMEs, small business owners,

and individuals, where the financing environment is increasingly deteriorating, is an urgent

and important task above all else. In order to be able to recognize and analyze in real time,

what kind of financial needs they have, financial institutions store various customer credit
II. Summary of prior research
information

In order to find a way to evaluate the credit risk of individuals and companies as accurately

and scientifically as possible, we have been making steady efforts in academia and practice.

1) Relational finance maintains long-term relationships with small and medium-sized enterprises (SMEs) so that they can more accurately grasp their internal credit information or future business feasibility.

It has the advantage of being able to manage credit risk more efficiently.

2) Hard information refers to information that is easy to recognize and easily communicated within financial institutions because it is quantified, such as financial ratios, credit ratings, and collateral. On the other hand, soft

information is difficult to quantify because it has the characteristics of business internal information such as manager's personality and reliability, payment integrity, and company outlook. 3) In fact, it is not easy to find a

model of relational finance in the domestic financial market. It is possible to expect such a role from cooperative-type financial institutions such as credit unions and Saemaul Geumgo, but even in these financial institutions, The

proportion of micro-loans and credit loans executed remains at a fairly low level. This means that even low-income financial institutions are not very active in their efforts to acquire new information on corporate credit risk

through relational finance.

4) Each CB company utilizes the information provided by the comprehensive credit information concentrating institution for credit rating calculation, as well as negative information such as default history and short-term delinquency,

and information such as opening information and credit history period, which it collects through its own efforts. In addition, since each CB company uses its own valuation model, the evaluation grade may appear differently

even for the same company. 5) FinTech is a compound word of finance and technology. It is a new IT technology such as mobile, SNS, and big data analysis, which differentiates it from existing financial techniques.

It refers to innovation in the field of technology-based financial services that provides customized financial services.

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Is non-financial information important in small business credit ratings? - Sang-yong Yoon, Man-soo Kang, Hyeong-tak Lee

Despite this, no remarkable results have been achieved. In the past, credit evaluation of individuals is It points out that there may be a lack of female objectivity. And, as studies that emphasized the

considered to have begun when Durand (1941) developed a credit evaluation method that uses personal importance of non-financial information, Yang Jin-hee (2003) developed a predictive model using a logit

credit information of various financial institutions to classify good and bad customers and obtains the model and a neural network, and found that history, guarantee amount, number of employees, past

weights of major variables through discriminant analysis. In terms of credit ratings for companies, borrowings, etc. can be major variables in evaluating credit risk for small businesses. Kim Kwang-Yong,

Horrigan (1966) predicted bond ratings using various financial ratios in corporate financial statements, Kim Seon-Hee, and Lee Yong-Hee (2005) also used the AHP method to convert the financial information

and Altman (1968) developed a model for predicting corporate insolvency using multivariate discriminant of small business owners into facility investment costs, financial status, financial stability, and funding

analysis. These are the early stages of research. However, in the case of small business owners, ability, and non-financial information to management ability, reliability, business stability, and feasibility.

individual and corporate characteristics are mixed, so studies on credit evaluation methods that are The value of non-financial information was emphasized after it was composed of factual information

effective for them are still at an insignificant level. It is also neglected. Boot (2000) found that small such as , business competitiveness, and job creation ability, preferential points, qualifications, and family

business owners are relatively small and lack publicly available information regarding the valuation of relations of managers.

credit information for small businesses. They said that credit risk should be evaluated based on credit

transaction risk, and Frame, Padhi, and Woosley (2004) and Cole, Goldberg, and White (2004) also

found that small businesses with low profits can reduce information asymmetry through the credit
III. Analysis of usefulness of non-financial credit
evaluation model to make loans more effective. It is necessary to manage it, so it is necessary to

develop a credit rating model suitable for small businesses and small business owners, and mentioned
information
the importance of considering the characteristics of a company's size in credit rating. In other words,

previous studies related to credit risk of small businesses emphasize that there is a limit to evaluating Although the importance of using non-financial information has been consistently emphasized for a

their credit risk only with financial information and that various non-financial information needs to be long time to manage the credit risk of small businesses whose credit information is not reliable in

considered as well. In fact, Brookings Institution and Political and Economic Research Council (2006) financial institutions, many financial institutions are still asking what kind of characteristics their customers

found that the delinquency rate of credit loans decreased when non-financial information was included have. , they are not very interested in the current situation, and there are many pointed out that

in personal credit evaluation using electricity/gas information or communication information data of 8 customers' credit is evaluated uniformly based on standardized standards that do not consider the size

million consumers. It has been confirmed that the effect is greater in the case of a thin file than in the of the company and the characteristics of each company. This seems to be because financial institutions

case of a credit transaction inexperienced person (thin file). In the case of Korea, in the study of Kwon not only require considerable costs to acquire and manage non-financial information of numerous small

Young-joon, Nam Jae-hyun, and Jo Min-jeong (2011), as a result of analyzing the personal credit business owners with various characteristics, but also because it is actually easier for financial institutions

evaluation model by additionally using electricity rate information as non-financial information for thin file to manage lazy credit risk based on hard information. In that case, it is necessary to examine how helpful

customers, the result of credit loan It shows that the number of related defective customers and the non-financial information of small business owners is to financial institutions, and if so, what characteristic

defect rate are decreasing. And as a method to analyze the usefulness of various information for credit information will be more useful information for financial institutions to manage credit risk of small

evaluation, in the 1980s, linear models such as multivariate discriminant analysis, regression analysis, business owners. To this end, in this chapter, we actually accumulate various non-financial information

and logit analysis were used, and in the early 1990s, artificial intelligence such as neural networks and of customers through financial transactions (relational finance) with customers for many years, and

inductive reasoning methods were used. Techniques and, more recently, studies using methods such include them in credit evaluation together with rating data from external credit rating agencies. Using the

as AHP, case-based reasoning, and SVM (Support Vector Machine) have been actively conducted. small business credit evaluation data of the Guarantee Foundation (hereafter, the Regional Shinbo), it

Multivariate Discriminant Analysis, Decision Tree Analysis is possible to directly determine how much of a difference in predictive power these information

characteristics have in the small business credit risk (subrogation), which is the main target customer of

the local Shinbo. We want to verify it.

1. Comparison of default predictive power by information characteristic

In fact, local Shinbo's small business credit evaluation is divided into a start-up model and a general

model, and is made in a manner in which additional points are differentially assigned by composing
(CHAID) and a neural network algorithm to empirically verify whether the credit rating of small

businesses can be separated from that of medium-sized enterprises. While variables such as stability additional points by industry. Compare the predictive power of credit risk for each information

are shown to be statistically significant, the method that considers corporate characteristics in the characteristic by using internal information of institutions (NICE evaluation information) and local

personal credit evaluation model that mainly reflects personal characteristics in the small business credit newspapers. To this end, this study first analyzed the credit evaluation data of local Shinbo's small

evaluation model requires the examiner to subjectively calculate the score. business owners largely into 'ÿ External hard rating (hereinafter referred to as CB rating)' and 'ÿ Internal

and external hard ratings' including internal information.

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<Table 1> Classification of items by internal and external information characteristics for small business credit evaluation

division Evaluation items Detailed evaluation

profitability Business performance of the company for a certain period of time

stability Solving capacity for borrowings and dependence on debt capital

debt repayment capacity ability to repay borrowings

liquidity The company's ability to pay cash

activity Efficient management of assets

Corporate credit score items growth potential Growth potential of a company over a period of time

industrial risk Evaluation of industry outlook, economic sensitivity, competition status, etc.

CB grade business risk Evaluation of business management ability, business strategy, risk coping ability, etc.

(External evaluation items) business risk Evaluation of sales efficiency, production efficiency, purchase stability, etc.

financial risk Evaluation of short-term fund management, financial risk, etc.

Kyungsung Information

reliability Evaluating the trustworthiness of business partners

Repayment history information Current delinquency status and past debt repayment history

Current Debt Level Debt burden information (non-bank loans, guaranteed debts, etc.)

Personal credit score items credit transaction period Credit transaction period, card usage record, etc.

Credit type information Credit Transaction Type

Credit inquiry information Credit transaction type (number of cases by product, share of utilization, etc.)

financial condition Real estate holdings, rental guarantee amount, borrowing amount, etc.

money liquidity Household income, cash flow, living expenses, short-term savings, etc.
internal rating
credit rating Whether arrears in utility bills, wages, rent, etc.

managerial ability Experience, work experience in the same industry, life stability, academic background, etc.

Internal evaluation items Management ability evaluation Evaluation of managerial ability, operational efficiency, employee skill level, etc.

Transaction credit rating Evaluation of managerial morality, transaction integrity, transaction stability, etc.

extra points soft information Growth prospects Location conditions, sales forecast, industry outlook, competitiveness, facility level

Technology Development Efforts Evaluation of qualifications, participation in educational programs, etc.

Social Responsibility Efforts Evaluation of social service, donation performance, etc.

Source: Nice rating information (www.niceinfo.co.kr), Korea Credit Guarantee Foundation (www.koreg.or.kr) reorganized

Combination grade (CB grade + internal hardness; hereinafter grade not applied with additional points)' and 'ÿ internal/external hardness <Table 2> Basic statistics of credit ratings of small businesses by information characteristics
(Unit: Pieces)

Ductile bonding grade (CB grade + internal rigidity + internal ductility; hereinafter additional points applied)'
external grade External grade + internal grade

In order to compare the predictive power of default by classifying them into three groups, such as credit
ÿCB grade ÿ Grade without additional points ÿAdditional point application grade

ranking
all. 6)
Normal Default Total Normal Default Total Normal Default Default

Here, 'ÿCB rating' is from <Table

AAA(1) 12,141 58 12,199 7,998 27 8,025 18,069 121 18,190

As shown in 1>, mainly financial institutions and related public institutions

AA(2) 14,499 145 14,644 17,068 174 17,242 24,294 392 24,686

It is a comprehensive evaluation based on characteristic information, and the next

A(3) 12,751 278 13,029 18,623 342 18,965 18,686 697 19,383

'Applied grade' refers to the financial status and fund ownership held internally by the local newspaper.
BBB(4) 15,874 446 16,320 19,003 756 19,759 14,438 924 15,362

By combining hard data such as same gender, credit rating, and managerial ability with external hard ratings,
BB(5) 13,200 646 13,846 13,720 907 14,627 6,330 554 6,884

Finally, 'ÿ grades applied with additional points' are 'CB grades' and 'additional points' B(6) 845 682 422
11,492 12,337 7,206 7,888 3,284 3,706

When combining the evaluation score of the additional points held by the local Shinbo with the CCC(7) 4,966 629 5,595 855 117 972 192 32 224

it will be kin In this study, the default prediction ratio of the classification information for each of these three characteristics is CC(8) 427 103 530 761 126 887 59 8 67

From January 2011 to the end of December 2014, 88,510 small wounds were C(9) 0 0 0 117 19 136 7 0 7

Authorized credit information is used for analysis, among which small businesses classified as normal D(10) 0 0 0 8 One 9 0 One One

There are 85,359 phosphorus and 3,151 small businesses classified as bankrupt. dental unrated 9 One 10 0 0 0 0 0 0

The basic statistics are shown in <Table 2>. Total 85,359 3,151 88,510 85,359 3,151 88,510 85,359 3,151 88,510

6) Here, the external hard rating (CB rating) refers to the credit information provided by the credit rating agency (CB) to personal financial institution transaction information and information held by public institutions such as tax arrears.

Refers to a relative index that classifies reliability related to use activity by score or grade, and generally includes repayment history information, debt level, credit transaction period, and credit type determination.

It is calculated by comprehensively considering beams, etc. In addition, internal hardiness information and internal softness information are reported by the staff in charge of each local credit guarantee foundation in the past local newspapers.

For small business owners with evidence of evidence, if there is a regular or special reason, visit the company directly and manage information items according to the internal guidelines of the local newspaper

It refers to information investigated by stars (hard information and soft information).

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Is non-financial information important in small business credit ratings? - Yoon Sang-yong·Kang Mansu·Lee Hyung-tak

<Figure 1> shows 'normal' for each of the three information characteristics based on the statistics in <Table 2>. wants to That is, default with dichotomous characteristics is set as the target variable,

It shows the distribution of grades and 'bankruptcy' grades. Points applied here Target variable with three evaluation grades with ordinal characteristics as predictors

Grades are relatively superior grades (ie, AAA, AA, A, etc.) compared to other grades. C5.0, CaRT, Quest, where the number is nominal and the predictors are ordinal

It can be seen that the proportion of class) is high. That is, other credit It uses CHAID. For this purpose, SPSS Modeler 17 was used.

Customers of grade to intermediate grades (ie, BBB, BB, B grades) are combined with the additional grades all. 7) <Table 3> compares the characteristics of algorithms for each model of these decision trees.

If so, it will be evaluated as an excellent grade. Ultimately, this is the definition of <Figure 1>. it will be arranged

In the distribution of 'default' grades by beam characteristics, the default rate was relatively high in the high grade grades.

It can be seen that this leads to high results. That is, applying additional points, etc. <Figure 2> Percentage of Normal and Default by Credit Rating

It can be understood that the credit risk is not properly assessed.

all. And among the three grades, the CB grade is at least a bad grade (ie, CCC,

CC, C, D) show that default is relatively best predicted.

is going This is because the CB rating is relatively the most favorable in assessing credit risk.

This means that it has great predictive power.

<Figure 1> Comparison of Credit Rating Distribution by Information Characteristics

<Table 3> Algorithm comparison by decision tree model

division C5.0 CaRT Quest CHAID

Target Variable Nominal, Sequence, Sequence Nominal, Sequence, Sequence nominal nominal

Predictors Nominal, Sequence, Nominal, Sequence, Nominal, Sequence, Nominal, Sequence, Nominal, Sequence, Nominal

chi-square statistic, Gini index, of variance chi-square statistic,

Separation criteria information gain
F-statistic decrease F-statistic (Levene)

Number of Separation Multiple Separation easy separation easy separation easy separation

impossible to prune possible possible possible

In order to examine in more detail, this study was conducted as a dependent variable
of missing values
impossible possible possible possible
of the actual occurrence of subrogation data, and three internal and external alternative rule

Ratings were used to determine their prediction accuracy and predictor importance, respectively. prediction Classification
classification, estimation Classification
classification, estimation

evaluated. Here, the presence or absence of default can be said to be a matter of classification prediction.

Therefore, logistic regression analysis, decision trees, neural networks, SVM (Support If you look at the analysis results of the prediction accuracy for each decision tree model in <Table 4>, 4

vector machine) can be used, but in this study For all models, the prediction accuracy was similar at about 71%.

C5.0 of decision trees, CaRT (Classification and Regression Trees), It is appearing, and based on the CB grade, additional points are not applied and additional points are added.

Using analysis methods such as Quest (Quick, Unbiased, Efficient Statistical Tree) and CHAID In the results of combining application grades, the difference in prediction accuracy for each model is not large.

(CHi squared Automatic Interaction Detection), can know the sound. This is to predict the bankruptcy of financial transactions with small business owners.

7) The SPSS modeler method makes it possible to check various analysis methods at a glance, and provides easy-to-see comparison of analysis results, especially for predictors
It also provides a percentage of importance as to which variable plays the most important role in predicting the dependent variable.

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Hurry up, the internal information of those held by the local Shinbo (grades without additional points, <Table 5> Predictor importance by decision tree model (unit : %)

This means that the role of the additional point application grade) is not significant. and < table division C5.0 CaRT Quest CHAID

group AB C A BCA B C A BC
Even if we look at the prediction importance of 5>, the grades with different importance ratios of CB grades
CB grade 0.82 0.78 0.76 0.54 0.55 0.57 0.51 0.54 0.57 0.55 0.61 0.56
is relatively high. This fact is based on external credit
Additional points applied 0.18 0.06 0.46 0.21 0.49 0.42 0.45 0.14

Compared to other internal credit rating data, the CB rating, which can be called evaluation data, no additional points applied 0.22 0.18 0.45 0.21 0.46 0.01 0.39 0.30

This means that it is playing a role as a relatively more significant predictor of default. Total 1 One One One One One One One One One One One

In the end, these analysis results are currently managed by the local Shinbo.

Various credit information of small business owners is not very helpful in managing their credit risk. 2. Consideration of new non-financial credit rating methods
In the future, financial institutions will not be able to improve the efficiency of SMEs or small business owners.

What kind of credit information needs to be secured to manage credit risk?

1) Credit evaluation method using big data

This suggests that there is a need to think about whether or not there is. Recently, credit evaluation methods for companies and individuals have changed in various ways.

are doing For example, in China's largest online market 'Taobao' and 'Tmall'

<Table 4> Prediction Accuracy by Decision Tree Model (Unit: cases) 'Aliva, a micro-loan business for small and medium-sized businesses

Group A: CB grade + additional point application grade

'Alibaba' is a big data platform for their transaction data, sales growth rate, customer evaluation, etc.

C5.0 CaRT Quest CHAID By accumulating data and reflecting it in credit evaluation, the ratio of non-performing loans is very low.
division

Normal default Normal default Normal default Normal default

It is known that the results are being maintained at the level (about 0.06%).
Normal 28,203 14,446 28,198 14,451 28,643 14,006 28,203 14,446
all. Lending clubs8 ) in the United States also collaborated with internet banks and local banks to make big deals.
bankruptcy 9,880 32,768 9,873 32,794 10,581 32,060 9,869 32,777
affection
Evaluate the repayment ability of loan applicants online through data analysis and
exact 71.48% 71.49% 71.17% 71.49%
sudden
It provides information to individual investors to raise small, diversified investments.
error 28.52% 28.51% 28.83% 28.51%
Degree

chi square 15,925.89 15,942.23 15,392.90 15,944.66

method is operated. And On Deck 9) is the god of small business.

degrees of freedom One One One One

Bank transaction details, cash flow, credit rating, comments or ratings on SNS, taxes

P-Value 0.000 0.000 0.000 0.000 Evaluate their creditworthiness by online analysis of payment status, etc.

there is. As a result, in Korea, there are various big factors in the credit evaluation of small business owners.

Group B: CB grade + non-additional grade

data, that is, credit card transaction information (sales information),

C5.0 CaRT Quest CHAID Various big data such as GIS (map information), weather information, commercial area information, industry information, etc.
division
Normal default Normal default Normal default Normal default
You can consider developing a model that predicts the insolvency of small businesses by combining
Normal 28,661 13,988 28,238 14,411 28,655 13,994 28,661 13,988
there is. In fact, Jong-Sik Yoon, Tae-Hyeop Roh, and Young-Sik Kwon (2007) discuss financial information and non-financial information
Default 10,503 Exact 32,140 10,093 32,575 10,509 32,157 10,475 32,158
affection

71.29% 71.28% 71.28% 71.32%

It does not include information and only uses credit card sales information of affiliated stores.
sudden

error 28.71% 28.72% 28.72% 28.68% A fairly high prediction as a model for judging the good and bad of female small business owners
Degree

chi square 15,561.84 15,611.31 15,567.01 15,605.24

have shown power.
degrees of freedom One One One One

Against this background, in this section, the scope of analysis

P-Value 0.000 0.000 0.000 0.000

Limited to small businesses in the wholesale and retail industry in Busan with strong power,

Among these data, GIS-based commercial district information, etc., is useful for predicting their bankruptcy.
Group C: CB Grade + Additional Points Applied Grade + Additional Points Non-Applied Grade

Let's take a brief look at what can be done. For this, first (1) the discriminant
C5.0 CaRT Quest CHAID
division
Normal default Normal default Normal default Normal default Classify whether the business sites at risk of default are normal or insolvent through analysis, (2)

Normal 28,170 14,479 27,912 14,737 28,655 13,994 28,254 14,395 Geographically Weighted Regression (GWR)

bankruptcy 10,017 32,631 9,722 32,933 10,483 32,162 10,070 32,571

affection
Analysis) 10) method to find factors affecting default, and (3) spatial
exact 71.28% 71.33% 71.34% 71.32%
sudden
A high-accuracy prediction model is developed by assigning weights to factors affecting
error 28.72% 28.67% 28.66% 28.68%
Degree

chi square 15,561.84 15,737.50 15,588.68 15,662.13

Develop and validate. As a basic analysis for this, first

degrees of freedom One One One One

The results of examining the spatial autocorrelation of variables used for spatial analysis are different.
P-Value 0.000 0.000 0.000 0.000
Well, it is summarized in <Table 6>. That is, the pre-selected guarantee amount, business

8) Lending Club selects only 10% of loan applicants to determine who can borrow, and gives them a 7-level credit rating from A to G, and then comes to the online loan market.
put it down Individual investors look at the list of loan applicants and invest in the person they want, in which case the investment is a small amount based on a minimum of $25.
will be investing The loan interest rate is 6.78~9.99% per year depending on the credit rating, and the Lending Club receives 1~3% of the loan amount as a fee in this process. Rendinkle
By the third quarter of last year, Rube made about $6.2 billion in loan transactions, and its corporate value was about $8.5 billion after being listed on the New York Stock Exchange at the end of last year, seven years after its founding.

(9.27 trillion won).

9) Ondeck has loaned a total of more than $2 billion to small businesses, and its total sales in 2014 are known to be about $158.1 million.

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Variables such as period and interest rate are spatially independent at a statistically significant level. In addition, the predictive power of small business defaults using SPSS Modeler's discriminant analysis

It can be confirmed that there is meteorological inertia. And in <Figure 3> The verified results are shown in <Table 7>, an example of predicting insolvent companies as insolvent

is the geographic difference between the default and major factors of small business owners in the Busan area. The side force has an accuracy of about 84.19%.

It shows the results of multiple regression analysis, which shows a high predictive power of about 90% or more.

It can be confirmed that showing <Table 7> Discriminant Analysis Results

prediction

division
<Table 6> Spatial autocorrelation analysis Normal Sum

8,318 8,318

variable Moran's I11) Z-score P-value

normal (100.0) (100.0)

Guarantee amount 0.095 2.011 0.044

Frequency (83.18) (83.18)

business period 0.112 2.349 0.019 (Row%) 266 1,682

interest rate 0.098 2.054 0.040 actual value bankruptcy (Total%) (15.81) Bankruptcy (100)

Frequency (2.66) 0 (0.0) (16.82)

Discriminant Analysis Score 0.099 2.087 0.040

(Row%) 8,584 (0.0) 10,000

Sum (Total%) (85.84) 1,416 (100.0)

Frequency (Row%) (Total%) (85.84) (84.19) (14.16) 1,416 (14.16) (14.16)

(100.0)

As a result, when only credit guarantee data were used and spatial analysis data

<Table 8> shows the results of comparing the predictive power of failure when including

all. In the end, in order to expand the predictive power of small business defaults, only the internal data of guarantee institutions

It can be said that the necessity of using big data such as spatial information is emphasized.

can

<Table 8> Comparison of poor predictive power including spatial analysis data

Predicted value (%) Predicted value (%)

internal data Internal data + spatial analysis data

division

normal bankruptcy normal bankruptcy

normal 100 0 98.54 1.46

actual value

bankruptcy 15.81 84.18 0.59 99.4

<Actual number of defaults>

2) Credit evaluation method using personality evaluation

Among the credit evaluation methods that have been introduced recently, psychometric

test) is a questionnaire-type question with no correct answer based on psychometrics.

Measure personality traits such as personality, taste, habit, preference, etc.

Through personality evaluation, the characteristics of consumers who apply for loans, their willingness to repay,

Loan review, decision and follow-up management by identifying business capabilities and financial habits

How to use it, etc. This personality evaluation method is based on financial sector transactions.

Willingness to repay, which has no history or is difficult to express with quantitative data; or

It is possible to extract and evaluate borrower information on business capabilities, etc.

The advantage of being applicable to new traders who do not have credit information

has a 12) Indeed, in this way, the British VisualDNA and the US

EFL companies in Korea do not look at credit scores, financial records, collateral, and loan history.

<Estimated number of GWR defaults> After taking a psychological test for about a minute, we provide a loan based on the result.

<Figure 3> Geographical significance between the bankruptcy of wholesale and retail businesses in Busan and major factors
In particular, financial institutions in 27 emerging countries in South America, Africa and Asia
Multiple Regression (GWR) Results

10) GWR is a spatial analysis technique. OLS assumes that the effects of independent variables appear the same regardless of location, but GWR is spatially close.

is assumed to be more closely related. In other words, GWR visualizes the spatial variation contained in the data and increases the fit of the model.

It allows for a better understanding of regional phenomena in which adversarial variation has significant significance.

11) Moran's I calculates coefficients by comparing the values of adjacent spatial units, and suggests the correlation of variables based on the measurement location. if in

When adjacent spatial units have similar values over the entire study area, Moran's I coefficient has a high static spatial correlation of (+) values, and adjacent spatial units

If the above values have different values, they have a high negative spatial correlation of (-) value.

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Management Consulting Research Vol. 16 No. 2 May 2016

EFL's personality evaluation method, which is being used, evaluates the business acumen, intelligence, As a result of examining whether the characteristics of each information are significantly related to the

honesty, and character of the loan requester and converts it into a credit score. The higher the score, the actual subrogation of their credit guarantees, the current level of internal information held by local Shinbo

better the future repayment ability. 13) This shows that the borrower's repayment possibility can be is not very helpful in managing credit risk for small businesses. appeared to be In other words, it was

predicted not only by the borrower's financial information, but also by the past repayment record and the found that credit risk management based on the CB rating, which is external rating information, is the

borrower's psychological and behavioral characteristics. If the credit rating can be evaluated, small most effective credit risk management method. It was found to have a relatively lower predictive power of

business owners with low collateral power and uncertain creditworthiness can benefit, and especially, the default than the non-additional model grade. This shows that it is important for financial institutions to

low-credit financially underprivileged class, who had to get loans at high interest rates in a lump sum, can consider what kind of credit information should be acquired for financial transactions with small business

be given a reasonable interest rate. For reference, looking at the personality evaluation method of payoff, owners in the future.

which is a latecomer in this field, the personality evaluation method is used as part of a strategy to

differentiate itself from competitors. For example, applying for a loan through simple questions Consumers

are classified into 10 types as shown in <Table 9>. Differentiated loan review standards and follow-up

management services are applied to each type, providing specialized services tailored to the customer's In fact, the recent growth of the fintech industry and the introduction of internet-only banks herald that

personality, habits, and preferences. the non-financial industry with a huge customer base and channel network can provide a variety of

customized financial services using fintech technology. In the end, in order for existing financial institutions

to secure a competitive edge with them, at least efforts to develop customized products to generate profits

and the need to manage customer credit risk as efficiently as possible to reduce costs. It means that it

has become more important. In addition, many studies have emphasized that the value of inside

<Table 9> Payoff’s 10 Personality Assessment Result Items information that financial institutions can obtain from maintaining long-term relationships with customers

Classification Result Description

due to information asymmetry in the SME financial market will be very large. However, the analysis results

The Adventure Always looking for something new, active and extroverted of this study show that it is not efficient to manage the credit risk of employees in charge of financial

The Ambassador A person who finds happiness in helping others institutions with credit information that relies on subjective judgment information about SMEs. In the end,

The Architect Meticulous, meticulous, and thorough personality

this means that financial institutions need to make efforts to find a way to evaluate their credit as efficiently
The Contrarian Always have an opinion opposite to the opinion of others
and accurately as possible by securing various non-financial information such as related big data and
The Free Spirit A free and free personality with no worries
personality evaluation results as well as quantitative information of customers. This suggests that the
The Oasis Usually introverted, but active among close friends
financial policy establishment process in the future fintech era should be supported so that the customer
The Guardian Strong sense of responsibility and possessing consistent and consistent behavior

Sociable and popular personality credit evaluation method can evolve new and innovatively. Nevertheless, this study has the following
The Storyteller

The Spark moody personality limitations from a practical point of view. First, the reliability of the validation of the significance of the

The Rock A calm personality, not easily swayed by emotions model may not be high because the number of accidents is insufficient compared to the number of

Note) According to Payoff's explanation, in the case of 'storyteller' type customers with a sociable and popular personality,
guarantees held by the local Shinbo. Therefore, in order to solve this problem, it is necessary to try to re-
considering that money management is poor or they spend money, the loan review standards are set high, and their credit

card usage history, etc. In order to ensure that they can always check, it informs customers by phone calls, text messages, verify the subject of this study at a time when the period for observation of accidents is sufficient. Second,

and emails from time to time. For 'Architect' type customers with a meticulous and planned character, a slightly relaxed
comparative analysis could not be carried out considering the peculiarities of small business owners
loan review standard is applied, and guidance on new products and new financial trends is provided. conducted intensively.

In addition, direct contact such as phone calls is avoided as much as possible for 'Spark' type customers, who are prone who have both individual and corporate characteristics. In fact, in the case of external CB ratings, for
to emotional fluctuations and are somewhat nervous, and the frequency of customer contact is kept to a minimum
small business owners, the proportion of hard information items that objectively judged individual
compared to other types of customers.

characteristics is high, and the internal information held by regional foundations is directly surveyed by

the staff in charge, and the proportion of subjective judgment information of employees is high. In order

to evaluate the usefulness of using internal information along with external CB ratings, obtain internal
IV. conclusion
evaluation information similar to external CB rating evaluation items as much as possible and compare

the accident rate predictive ability for them.

In this study, by using data such as credit information and credit evaluation of small business owners

of local newspapers that provide financial support to small business owners, the relationship (predictive

power) of differences in information characteristics with credit risk (default; subrogation) of small business

owners. ) was verified. First, it is divided into three groups: CB rating (external rating information), internal

and external combined rating information, non-additional ratings, and additional ratings application ratings.

12) The personality evaluation method is mainly conducted in emerging countries such as South America and Asia, which lack quantitative information for credit evaluation, and in underdeveloped countries in Africa.

It is known that the actual insolvency rate has been reduced by 50% to a minimum of 17%.

13) In fact, Mastercard introduced VisualDNA's personality evaluation and tested 150,000 people, and as a result, the insolvency rate was reduced by about 23%. It is known that the
results have been lost.

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Is non-financial information important in small business credit ratings? - Yoon Sang-yong·Kang Mansu·Lee Hyung-tak
need to see Finally, as a proposal for a credit evaluation method using big data,
this study attempted to analyze the wholesale and retail industry in Busan, but it
is necessary to try to verify this nationwide in the future.
<Post date: 2016.03.25>
<Examination date:
2016.03.30> <Publication date: 2016.05.21>
references
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Management Consulting Research Vol. 16 No. 2 May 2016

Is Non-financial Data Important for Credit-rating of Micro-

Enterprises? *

Yun, Sang-Yong **
Kang, Man-Su ***
Lee, Hyung-Tak ****

Abstract 14)

Recently, in Korea, Kakao Corp. and KT Corp. have won preliminary licenses to run Internet-only banks. The two consortiums are expected
to focus primarily on providing medium-cost loans to people with low credit standings. To serve these people, the two banks should be able to
analyze their creditworthiness. Therefore, It is expected that the necessity of collecting and using non-financial data as well as traditional credit
data for credit scoring would be increased.
In fact, until now, underwriting credit risk of consumer has relied heavily on financial data inputs. But for micro-enterprises we focus on in
this study, the traditional financial data inputs are generally unavailable in the financial market, so it has served as an obstacle to evaluate
consumer credit risk.

Under this circumstance, this paper examined, using micro-enterprises data of credit-guarantee foundations, the efficiency of adding non-
financial data to a traditional credit scoring model (CB) on micro-enterprise consumers, and could not find the improvement in scoring model
performance with inclusion of non-financial data in CB credit-rating information.

Key words: SME financing, credit risk management, non-financial data, relationship banking, bigdata

* This study was supported by research fund from Chosun University, 2015.
** Professor, Department of Economics, Chosun University (syyun@chosun.ac.kr), first author
*** Researcher, Federation of Credit Guarantee Foundations (jazzmusi@koreg.or,kr), co-author
****Professor , Department of Business Administration, Keimyung University (htlee@kmu.ac.kr), corresponding author

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