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Beyond the Credit Score : The Role of Social Capital in Microfinance Lending Decisions
Klaver, Siemen (2025) Beyond the Credit Score : The Role of Social Capital in Microfinance Lending Decisions.
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| Abstract: | This study explores the extent to which social capital – a form of soft information – influences loan approval decisions across different credit score categories at a Dutch microfinance institution. The reliance on standardized hard information – such as credit scores – has reduced access to financing for those who lack a record of successfully repaying loans, particularly impacting SMEs. Using a dataset of over 14,000 loan applications from 2018 to 2022, we developed a dictionary-based pattern recognition model to detect indicators of social capital within unstructured loan officer reports. The findings reveal that social capital consistently increases the likelihood of loan approval across all credit score categories. However, the overall effect of social capital did not significantly differ between credit score categories. Additionally, gender did not have an influence on the relationship between social capital and loan approval. Remarkably, credit scores alone did not significantly predict loan approval outcomes. This indicates that loan officers at this microfinance consistently rely more heavily on social capital than on credit scores when assessing the applicant’s creditworthiness. Therefore, this study highlights the impact of human judgement in microfinance lending. |
| Item Type: | Essay (Bachelor) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | International Business Administration BSc (50952) |
| Link to this item: | https://purl.utwente.nl/essays/106783 |
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