| dc.description.abstract | Credit risk modelling and analysis are needed in finance and have over many years become
active parts of research, motivating statistical modelling. Because of the high numbers of
borrowers who fail to fulfil their loan repayments, credit reference bureaus (CRBs) have
existed for quite some time especially in countries that have long histories of hosting
multinational companies. However, the current standards for regulating how credit risk is
quantified have often used assumptions that don’t match the reality. This study deals with
modelling and estimating through simulating the risk from borrowing activities as it relates to
CRBs. Data was collected from annual default reports from the CBK, CRBs and major
financial institutions over three years (2018, 2019, and 2020). The study also used focus
group discussions to establish baseline levels of default factors. A sample of 12 participants
was drawn from the total population of CRB staff members performing the core functions of
credit risk determination. The study data was collected using document analysis and Focus
Group Discussions (FGDs) to gather historical and current data both qualitative and
quantitative. Using the advanced system dynamics approach, the study conducted simulations
with starting values from real world scenarios to produce actual measurements of defaulting
risk. The model involves analysing the dynamics of common factors which influence the
borrower’s ability to repay loans. Descriptive analysis was through tabled summaries and bar
charts, and explorative analysis applied Causal loop diagrams (CLDs). The simulation was
conducted with the aid of graphical output generated from calibration of stock-and-flow
diagrams. Through simulations, the study demonstrated how influential parameters of the
model are estimated and provided statistical evidence that the model fits the Kenyan CRBs
situation better than other often used techniques. The information gained from this study will
benefit the government, the Central bank of Kenya (CBK), research scholars and other major
financial institutions around the country. | en_US |
