Farmers' credit risk evaluation with an explainable hybrid ensemble approach: A closer look in microfinance

Abstract

Artificial intelligence stimulates the vitality of microcredit by reshaping credit risk evaluation models, especially targeting the group of farmers. Therefore, the paper aims to establish a new interpretable hybrid ensemble model for evaluating the credit risk of microfinance for farmers, which is called ADASYN (Adaptive Synthetic Sampling)-LCE (Local Cascade Ensemble)-Shapash. It integrates the advantages of three ensemble models: bagging, boosting, and local cascading, including reducing model variance, reducing model bias, and simplifying complex problems by learning different parts of the training data. And it alleviates the problem of low generalization performance of traditional ensemble models caused by imbalanced loan data of farmers. Through the empirical analysis of the data of farmers' loans of China poverty alleviation agency “CHONGHO BRIDGE”, it is found that its average rank is 2.1, which is better than other integrated models in the credit risk evaluation of farmers' microfinance. Finally, the global and local interpretation of our model is preliminarily explored. • this study introduces a new hybrid ensemble ADASYN-LCE model. • It offers data balancing, bias-variance minimization, and enhanced interpretability. • It uses data from 1298 farmers' microfinance in Chinese poverty alleviation institutions. • It improves Chinese farmers' credit risks assessment.

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